Homebuyers are often put off by fixer-upper properties. After all, home renovations can be pricey. Homeowners are also often wary of renovations for the same reason. Whether you are a home buyer looking to own your first home or a homeowner who wants to increase your property value, renovation mortgage financing can be beneficial to you.
Taking out a home mortgage can also be a good way to obtain funds through lines of credit or loans. There are different reasons for anyone to refinance their homes. Whether you are undertaking renovation costs to create the house of your dreams or looking to improve property value, it is important that you understand the technicalities of getting refinanced before you take out your mortgage.
Weigh the Pros and Cons of Refinancing
Decide whether or not you need to apply for a loan. Refinancing involves a long-term commitment, so you should determine whether or not you have a good reason to apply for a loan before you approach a lender.
Plans of renovating the home to boost your property value is a valid reason to apply for such a loan. However, refinancing is only beneficial in certain circumstances, so you have to do your research regarding your property’s current value as well as the different market rates in your area. Some of the reasons you may consider refinancing with a renovation loan are the following:
- Low-interest rates. Falling mortgage rates in 2020 increase the number of mortgage refinances, allowing you to borrow more without changing your mortgage payment drastically.
- Remodeling is more affordable than buying. Real estate markets are booming, which is why many decided to tackle home improvements instead.
- It adds value to your home. Smart renovations, such as kitchen upgrades and curb landscaping can boost the property value. Improvements are not limited to the rooms and lawns, either. Replacing heating and cooling systems offer the best returns. It also provides better comfort and lowered utility bills.
Determine whether or not you can afford monthly repayments. If you are not sure how to best evaluate your property, mortgage professionals can easily help you out. Experts from Altrua Mortgage Rates said that in determining the mortgage rates you can afford, you will have to ask yourself how much you need to borrow, and how much you can afford to borrow, taking into account the amount you can set aside for monthly payments.
Check and understand your credit score. It is not impossible to get refinanced even with a bad credit, however, your credit ratings remain very important for your loan application. In many cases in Canada, lenders require a credit score of at least 660 so that you can do a cash-out for refinancing your home renovation. The credit requirement, however, depends on several factors including home type, property value, and the amount of cash you want to take out.
A low credit score can be offset by other factors such as equity, high income, or other assets. With this in mind, it is also important to note that even though your credit score is generally good, lenders have the right to impose their own numbers, which you will have to take into account. Furthermore, you will also need a certain amount of equity in your home that requires an appraisal of the property value.
Shop for The Best Rates
Upon determining that you have a valid reason to apply for a loan, enough funds for monthly payments, and a good credit score, you can take the time to understand basic mortgage types and have your lender and mortgage professional explain the mortgage rates.
- Fixed-rate mortgage – make the same monthly payments and interest rate over the term of the mortgage.
- Variable-rate mortgage – market conditions will determine the payments and interest of your mortgage rates.
- Combined-rate mortgage – terms are flexible and may include both fixed and adjustable mortgage rates.
Refinancing does not mean that you simply get a loan and pay back the amount you owed your lender. You will also have to consider other expenses, including the cost of home appraisals, insurance fees, and other legal costs. Once you take into account all these costs, you will be able to see a clearer picture of whether or not a mortgage loan is favorable for your current circumstance.
Process Your Paperwork
Enlist the help of a mortgage professional. The help of a mortgage professional is important as they can assist you through the entire process of your application. They can help you determine your credit score and finances, assist you in gathering all the important documents that you are required to submit, and submit the loan application on your behalf.
Your mortgage professional can also help explain the equity requirements to cash-out your home renovation loan.
Submit the necessary documents. Once you’ve covered your bases, you may apply to refinance your home renovation project. Ask your lender or mortgage professional for the list of documents that must be submitted along with your application. This will typically include proof of income and tax documents.
Review proposed mortgage agreement. While you may feel elated upon the approval of your loan, you don’t have to automatically agree to their conditions. Make sure that you read and review the terms and conditions of the loan, and pay attention to the fine print, as well as provisions regarding interest rates, payment schedules, and other possible costs. If you are not sure about certain provisions, ask for clarification to avoid problems in the future.
When it comes to refinancing your home, it is essential that you understand the necessity of taking out a mortgage. Evaluating your finances will ensure that you are stable enough to afford monthly repayments, refinanced mortgage, and other costs related to such a loan. You should also shop for different mortgage options to find the best rates for you. A mortgage professional is especially helpful to get you through the process of application, and later on, explain to you the terms of your loan (if it is approved).