An Overview of Financing Home Improvements
Financing home improvements can be a daunting task. Nonetheless, given the current state of the economy in the United States, and in particular the housing market, many homeowners are turning to home improvements as a way to make a house more attractive to potential buyers, or to increase the market value of a home. “Home improvement” usually refers to the process of undergoing a project to improve the appearance or structure of an existing home, and successful completion of such projects can significantly increase the value of a home. Financing home improvements not only increases home value, which results in greater financial return in the end, but, in addition, home improvements financing payments are often tax deductible. Obviously, homeowners must do careful research to ensure that their anticipated home improvements will increase the value of the home in an amount greater than the cost of financing home improvements, considering interest amounts and other loan terms.
Some examples of home improvements include replacing windows, adding new flooring, waterproofing basements, and upgrading cabinets and sink fixtures in kitchens and bathrooms, wallpapering or painting walls, and upgrading heat or air conditioning systems. Improvements made to the exterior of a home, such as landscapes and installation of swimming pools, are sometimes also considered to fall within the ambit of home improvements. Because home improvements are often expensive–particularly for projects involving kitchens or bathrooms–many homeowners turn to financing home improvements as a way to make increased home value a more reachable goal. One recent trend in home improvements is making a home more energy efficient, which benefits both the residents of the home and the ecological health of their community.
Companies that provide home improvements financing services usually offer two types of loans: mortgage refinancing and home equity refinancing. Mortgage refinancing is a standard method of simply replacing a homeowner’s original mortgage with a larger mortgage. The bank that holds the original mortgage usually also provides the newer refinanced mortgage. The second type of loan to finance home improvements is called home equity financing, which simply refers to the process of supplementing an existing mortgage with a line of credit or home equity loan.
In addition to options provided by private banks, many cities and states provide incentives for homeowners to invest in real estate by offering extremely low rates on home improvements financing. Another similar option is a Title I Home Improvement Loan, which is a type of home improvement financing provided by a private bank or other company and backed by the United States Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA). This type of loan may only be available to low income families, although, given the rapidly changing climate in the real estate market, the restrictions on government supported home improvements financing could lighten in the upcoming months and years.
Homeowners are well advised to consult a financial advisor before undergoing any major changes to their mortgage terms. Because every home is different, factors such as climate and location can play a significant role in terms of measuring costs and the effort that will be required to finance home improvements. Additionally, those interested in home improvement financing must keep in mind that do it yourself (DIY) projects will usually be less expensive than hiring laborers to accomplish home improvement tasks.
Financing home improvements offers not only financial benefits for qualified homeowners, but also provides peace of mind and comfort for families interested in improving the market value or simply the appearance of their home. Although it can be difficult to determine when is the best time to finance home improvements, the most logical approach is to determine the specific projects that should be tackled first, and then obtain information on the terms of potential home improvement financing options.