If you’d like to make a few renovations to your home and don’t have the money to do so, you might be thinking about home refinancing. Wyndham Capital Mortgage is here to guide you down the road to refinancing success and make sure you go down that road well informed. So how much of your cash-out refinancing funds are you able to use for renovating your home?
Refinance Tips: How Much Cash Can You Take Out For Home Renovations?
It All Starts With Equity
The first thing you’ll want to do is determine how much of your home you currently own, which is known as equity. To determine equity, subtract the amount you currently owe on your home loan from your home’s current value. To get an accurate measure of how much your home is worth, you may need an appraisal.
Once you have your equity, write down all of the changes you want to make to your home and figure out how much they’ll cost. Now you know how much you want to borrow. Bear in mind that it’s best you only borrow a percentage of your equity. Specifically, don’t borrow more than 80 percent of your equity. The reason for this is that borrowing any more is likely to require you to have private mortgage insurance, which can be expensive.
Deciding on Your Renovations
Give careful consideration and forethought to the changes you’d like to make to your home. Home renovations refinancing is undeniably advantageous, but it’s even more advantageous when you use the money with wisdom. Do your research to see which renovations come with the highest return on investment. If you have any doubts as to the upgrade’s ROI, you may want to either leave it out of your final design or pay for it with your own money to minimize risk. Bear in mind that sometimes the smallest and least expensive changes have the largest ROI, so look into those first.
Before you start looking over refinancing terms and conditions, bear in mind there’s no guarantee you’ll recoup your investment, even if you make renovations with known high ROIs. This is because your home’s value may not continue to increase over the years. There’s also the possibility that real estate values could take a dip. None of this is mentioned to dissuade you from home refinancing, simply to inform you of both sides of the issue.
Balancing the Scales
To help you “pull the trigger” on whether cash-out refinancing is right for you, consider these advantages and disadvantages. On the upside, refinancing lets you take care of your existing mortgage and closing costs, and you may be able to score a lower interest rate. To truly take advantage of a lower rate, keep a close eye on the real estate market and strike when the iron is at its hottest. This may require a bit of patience, but you can continue working on your design plans in the meantime.
Now for a few disadvantages. For one thing, you’ll be pulling equity out of your home, which essentially eats away at your investment. You’re also increasing the overall duration of your loan, which increases the overall amount of interest you pay over time. And finally, refinancing your home can put you at risk for being upside down on your loan if the value of your home takes a dive.
Sit down with a loan officer to explore all of your options for home refinancing and renovating. Even if refinancing isn’t right for you, there might be another option better suited for your specific needs. In any case, be sure you and your finances are well-prepared for any contingency, good or bad.
As always, Wyndham Capital Mortgage is here to lend a hand and more than a little industry knowledge. Let us help you learn more about the refinancing process.