Last Updated on June 12, 2023 by Luke Feldbrugge
There are options available for home improvement financing and in this post we’ll briefly cover the cash option and also how to leverage your home’s equity.
American Home Remodeling Trend
If the pandemic taught us anything about homeownership needs, it is that sometimes you need to reevaluate your space to fit your changing needs. Americans spent over $418 billion remodeling their spaces in the third quarter of 2022, according to figures reported by Statista. This upward trend has been in place since 2015 and shows no sign of changing.
How can you finance these changes? In 2019, most homeowners funded their renovations with cash from their savings, whereas three percent used an unsecured loan. Home improvements are essential enough for many Americans to prioritize saving for such projects.
Use Home Equity for Home Improvement Financing
Homeowners that don’t have savings on hand to remodel their space may tap into the home equity they’ve built up, and put it toward home improvement financing. Last year, home values rose substantially on a national level, leading to a massive increase in home equity.
Black Knight February 2023 report states that mortgage holders have a collective $9.3 trillion in tappable equity. Even though tappable equity — the amount homeowners can access while still retaining at least 20% equity in their homes — is up 56% over the past three years.
There are several options available to cash out your home’s equity, without needing to refinance the entire mortgage on the property.
Home Equity Loan for Home Renovation
Home equity loans draw on the equity in a property as collateral. They involve borrowing a fixed, lump-sum amount. The sum is given directly to the homeowner.
Home Equity Line of Credit (HELOC)
HELOCs also draw on the equity in a property as collateral. But, they establish a credit limit based on the home’s available equity, generally up to 85 percent of its value minus outstanding mortgage balances.
Homeowners can draw funds with a credit card for the set length of an established period. The amount monthly due is not permanently fixed like with a home equity loan; minimum monthly payments are required, with an initial period in which payments may be “interest only.”
A cash-out refinance is another option homeowners could use to tap their home equity. With this option, a borrower would replace their existing mortgage with a larger one. The difference between the current mortgage’s balance and the new, larger loan in cash is what you use to fund your renovation.
Veterans Affairs offers cash-out refinance loans, which allow you to refinance a conventional home loan and take out cash on your home’s equity.
Personal Unsecured Loan
You may also opt to use a personal unsecured loan if tapping your home equity isn’t an option, and you don’t have the cash saved. Since the loans are unsecured, your house isn’t used as collateral to qualify. Instead, qualification for personal loans relies on your credit score. Some government programs can help with your home renovations.
Save on Home Improvement Financing
If you are ready to speak with our local mortgage specialist to help determine the right home improvement financing option for you, simply sign up today and our specialist in your area will contact you. On average, our local mortgage specialists save heroes $500 on lender fees when you refinance with Homes for Heroes. It’s our way to say thank you for your service.