In the past, taking out a loan to remodel your home meant going to your local bank, meeting with a loan officer, and hoping your credit was good enough to get at least a decent interest rate. However, these days, there are more options when it comes to financing an addition to your home.
As an example, mortgage brokers offer more than two hundred loan programs. And the mortgage broker is just one type of lender that’s eager to put together a loan package that will work with your budget and credit rating.
So, if you’d like to finance a home addition, keep reading to learn some helpful tips you can easily follow to finally make it happen.
Shopping Around for the Right Loan
Before you sign on that dotted line, it’s important to do your research in order to find the right loan for you and your family. When you’re shopping around, make sure you have a plan in place. Know how much money you need, only look at programs that can work with your finances and focus on lenders that are more likely to provide decent interest rates.
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Whether you decide to do the work yourself or hire a contractor, come up with a rough estimate of how much the home addition is going to cost. If you’ve decided to go with a contractor, create your budget including materials and labor. Next, add on fifteen percent for any surprises along the way. For any work you plan to do yourself, create a detailed list of materials, the quantity, and add up the expenses. These fees should also include equipment rentals and any permits needed. Next, add a twenty or thirty percent cushion just to be safe.
Once you’ve determined how much you need, next, you’ll have to figure out how much you can actually get. Despite the promises of lenders, how much you get is based on your income, loan to value ratio, and your credit rating. All of these factors will help to determine the amount of interest you’ll have to pay.
In order to determine what you can expect in terms of the amount you’ll qualify for, you’ll need to use the loan to value ratio, which is what a lender will use to determine how much they can loan you. Typically, the appraisal value of your home is around eighty percent. By subtracting the mortgage balance from the amount, the lender will come to the max amount you’re able to borrow.
You’re Ready to Choose a Lender
If you’ve done your homework, you’re now ready to choose a lender that should approve you for the amount you’re looking for. Your search should focus on mainstream brokers, credit unions, and banks. If you don’t have the best credit, many brokers and banks will allow someone to cosign on the loan, but they’ll also bump up that interest rate. Another option is to focus on improving your credit rating, waiting a period of six months until your credit rating has increased and then reapply for the loan. Ultimately, regardless of your credit, you should be able to find a lender who is willing to work with you to get you the money you need for that new addition to your home.