If you are not remodeling your home due to damage covered by insurance, you might need financing for your project. At one time that meant you had to go to your bank to request a loan. Today, you have many options to finance a home renovation or remodeling project. Vermont Remodeling does not finance remodeling projects, but we want to help you find the information you need about potential financing and prepare for the application process.
Credit and Loan Financing Options
For each of the following three options, you still need good credit to obtain a favorable loan rate. The higher your credit rating, the better rate you’ll land.
Home Equity Line Of Credit (HELOC):
- Home Equity Line Of Credit (HELOC): A HELOC lets you borrow against your home’s equity. You can obtain up to 90 percent of its value to finance your home renovation costs.
Cash out refinance:
- Cash out refinance: When you refinance your mortgage, you can also extract its equity. How much equity you can withdraw depends on the lender and their rules.
- Construction loan: Choose a construction loan if you want to undertake a large project like an addition or attic renovation or finishing out the basement. This loan type also extracts equity but bases it on your home’s future value. This loan type requires you to submit design drawings to the lender, plus a signed agreement with a qualified remodeler. The lender you choose may have other requirements.
Getting Ready to Apply for Home Financing
You can improve your chances to obtain a home financing loan by pre-planning. These three steps will help you get ready to apply for a loan:
- Determine the amount of money you need to complete the project and the amount you could obtain. Your potential lenders will require evidence of your numbers. We can provide a line item estimate of the labor and materials.
- Narrow your loan options by studying your finances and choosing only those that provide a great fit. You should determine the factors a lender will scrutinize before you apply. Lenders analyze your credit rating, monthly and annual income and the loan-to-value ratio.
- Focus on applying to lenders that provide the loan type you desire and who normally loan to people in your financial situation. For example, if you have poor credit, look for lenders who specialize in loans to those with less than perfect credit.
Home Financing Tips
Use these financing tips to improve your application approval chances.
Do the math. You can calculate your loan-to-value ratio just as your lender will. Here’s the formula.
LTV = (your home’s value * .80) – your mortgage balance
For example, if your home’s value is $200,000 and your mortgage is paid down to $70,000, then you subtract your remaining mortgage costs from 80 percent of your home’s value. That results in an LTV of $90,000.
$90,000 = ($200,000 * .80) – $70,000
Check your credit rating and your credit score. These are two different things. Both influence your loan rate and ability to obtain a loan or line of credit. If you have a credit score of less than 600, take some time to raise it before submitting loan applications.
Calculate the sum of your house payment and other debt, then calculate your gross monthly income. Your debt should come to less than 36 percent of your gross monthly income.
Informally speak with your bank. Put out feelers to determine the likelihood of your obtaining a loan from them.
How We Participate
Vermont Remodeling does not offer home financing. We do provide our potential clients with line item estimates for their potential projects so they can include it with their line of credit or loan applications.
We work more closely with some home financing lenders than others and can recommend financiers to you with whom our previous clients have had good experiences.
If your lender has additional requirements, such as architectural plans or blueprints, we can work with the architect or designer to make sure our estimate covers all design aspects.
Currently, Vermont Remodeling does not partner with a financial institution. If we do so in the future, check this page for a link to its application.