Home renovation loans can be tricky. It is hard to decide which loan is right for you when you are unsure how much the home renovations will cost, and how much value the renovations will add to your home. In fact, if you are in the market for a home renovation loan and you also don’t have a lot of spare cash, then you likely need to do quite a bit of planning and research before you begin talking with a lender or mortgage broker.
Fortunately, there are a lot of lenders, loans and different options to choose from when you search online. There are financial portals, such as Finanza – https://finanza.no/, where you can find all the information about different loans and terms. Some of the key options are discussed below:
Equity in Your Own Home
This is one of the most common sources of equity to use as security on a home renovation loan, and there are two main ways you can tap into this. Firstly, if you had a sizeable deposit when you initially purchased the property (for example 25% or more), it is likely that your lender will use the existing “spare” equity as security for the loan. Secondly, if the value of the home has increased since you bought it, or you purchased it at below market value, again the “spare” equity may be sufficient. The best option for a lender will be the bank that has the existing mortgage on the property.
The Value Added by the Home Renovations
If you don’t already have sufficient equity in your home, then most lenders will provide home renovation finance based on the increase in value of the property resulting from the renovations.
This is a little trickier, however. Firstly, for the lender to use the added value, they want to be pretty confident of exactly how much value will be added. They will probably want a professional opinion from a valuer, which you will have to pay for. Before getting to this point, however, you should try and find a friendly local real estate agent and discuss what your home renovation plans are with him/her, and get their opinion on the value that will be added before you spend the money on the professional valuation.
You should also bear in mind that lenders will be less enthusiastic about lending to you for home renovations if you are doing a lot of the work yourself, as they will be less certain about the quality of the finished work, and also when it will be completed (do-it-yourselfers are notorious for underestimating the time needed for home renovation projects!). If most or all of the work is to be carried out by professional contractors, the lenders will be more comfortable. The may also require that the loan be paid out in stages once certain parts of the project are completed.
Other Sources of Security for the Loan
Many lenders will accept assets other than the home itself as collateral against the home renovation loan. For example, you could use the value of stocks that you own, or maybe a car or a business. While the value of your stock holding is easy to determine, the lenders will almost certainly require a written valuation on assets such as a car or a business.
You need to be clear in your own mind what you are looking to achieve with your home renovations. The purpose may purely be to add value to the property, or you may be wanting to make it more livable for you and your family. Either way, if you have little cash to contribute to the project, it will be crucial to ensure that you will add more value to the property than the cost of the renovations.