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Great Ideas for Your Home
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One of the major aspects to consider when building or making home
improvements is financing the project. Fortunately, there are many
financing options available to choose from today. The most popular
choices for new construction are:
Conventional Mortgages. Choices include a 30-year fixed-rate
mortgage, 15-year fixed-rate, or adjustable rate mortgages (ARMS).
Banks, credit unions and mortgage lenders offer a wide variety of terms
and competitive rates. Mortgage loans are described by the length of
time for repayment and whether the interest rate is fixed or
adjustable. While most mortgages require monthly payments of principal
and interest, some lenders offer bi-weekly payment options. Home buyers
who can afford the higher monthly payment sometimes prefer a 15-year
conventional mortgage over a 30-year because the interest rate will be
lower.
With a fixed-rate mortgage, the interest rate stays the same during
the life of the loan. But with an ARM, the interest rate changes
periodically, usually in relation to a specific index such as the
national average mortgage rate or the Treasury Bill rate. Payments may
go up or down accordingly.
FHA Mortgages and VA Mortgages. These are operated through the
Federal Housing Administration. These low down payment mortgage
insurance payment programs require only 5 percent or less of the cost
of the home for your down payment. If you are a veteran or active duty
military personnel, you may be able to obtain a loan guaranteed by the
Department of Veterans Affairs. VA-guaranteed loans require little or
no down payment.
For home improvement projects, consider the following four options
to finance your remodel:
Home Equity Line of Credit. This is similar to a credit card except
that your house is used as the collateral so the interest is usually
tax deductible. A revolving line of credit is established, which can be
reused as the balance is paid off. You will be able to borrow from your
line of credit whenever you want by using special checks or a credit
card.
Home Improvement Loan. This type of loan requires a construction
consultant to give an on-site estimate of the improvement costs to
determine the amount of the loan. The lender holds the funds and makes
up to five payments during the renovation process. When the
improvements have been made, the lender sends an inspector to approve
the work. The house must be at least three years old and require at
least $5,000 in repairs.
Second mortgage. This loan may be helpful when you know exactly what
your remodeling project will cost. It is similar to other installment
loans with predetermined payments for a specified period of time,
usually 15 years. The interest rate and terms of the mortgage can be
fixed so a second mortgage is beneficial in a market like today's when
interest rates are low.
Cash out re-finance of your current mortgage. This is refinancing
your first mortgage and borrowing the balance of the mortgage plus the
amount of your improvement project. Deciding whether a cash out
refinance is an option depends on your current interest rate and terms
compared to what the rate, terms and refinancing costs are in today's
market. The length of time you plan to live in the house and the number
of years left on your current mortgage are also important factors.
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