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Home Improvement

Many homeowners refinance because they would like to make improvements or repairs and wouldn't otherwise have the money to do so. A home equity loan is a program that uses the equity (or value of a home less any debts or loans) to finance remodeling projects. There are numerous advantages to this type of refinancing, one being that it lowers the initial cost of your project because your interest rates will be lower, saving you money on monthly payments.

The difference between Mortgage refinancing and home equity refinancing, is that with a home equity program, you keep your current loan, and are able to draw out a large lump sum of money against the equity in your house. It is a good choice for someone who needs a certain amount of money at the beginning of a project. Otherwise, another choice called a Home Equity Line Of Credit (HELOC) acts as a line of credit that lets you draw out money whenever you need it, up to the credit limit. The good thing about this option is that you can use what you need, and there is no interest due on the cash you don' t use. Access to your funds is as convenient as the nearest ATM.

A HELOC can also be used to finance business opportunities or pay for a college education. The funds are available for you to use multiple times at your discretion, without having to reapply for another loan.

Home improvement loans by HUD (Department of Housing and Urban Development) are another way to go. With Title 1 loans, HUD insures the borrower against possible default, and the borrower receives a loan from a pre-approved lender. The borrower cannot, however, use the funds for anything other than repairs and renovations, like "luxury items" such as jacuzzis or swimming pools

Another option is HUD's 203(k) program, which allows a home buyer to purchase a home in need or repair, or to refinance a current loan with the amount needed for renovation included in the new loan. This program is insured by the FHA (Federal Housing Administration), which is part of HUD, and the buyer gets to choose from a list of pre-approved lenders. They pay a down payment, which is approximately 3% of the cost of the home plus any necessary repairs. The loan final loan amount not only includes the money needed for the renovations and repairs, but also a reserve of 10-20% of the total costs, in case something unexpected comes up.

After the seller of the house is paid or the previous loan is paid off, the remaining funds are put into the escrow account upon closing, and are made available to the contractor over the course of the remodeling. Other major reasons homeowners refinance are: Debt Consolidation and a New Home Purchase.












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