Fund Your Next Home Improvement Project by Tapping Into Your Home’s Equity

If you have been paying down your mortgage and the value of your home has been going up chances are your home equity has been going up as well.

To tap into this home equity for your next home improvement project, you have a couple of options.

The first option is the home equity line of credit (HELOC).

With a HELOC, you borrow against the equity that has been built up in your home.  Generally, these loans come with higher interest rates and shorter payback periods than your current mortgage.  Plus, the monthly payments may be high due to the short payback period.

This can be a viable option but can be an inconvenience because now you have two loans to worry about paying on time – your current mortgage and the HELOC.

The second option to tap into your home equity, and our favorite here at Refily.com is the cash out refinance.

With this type of mortgage, qualified homeowners could replace their old mortgage with a new mortgage and pull some cash out from their home’s equity for that home renovation project they’ve wanted for years.

The cash out refinance makes it easier to pay your bills because you only have one loan to take care of.  And the cash you pull out can immediately be used to pay for that expensive home renovation project you have wanted for years (if this is your first home improvement project you will be surprised at how much repairs will cost!).

What’s Your Budget?

There are two ways you can go about figuring out what the budget for your home improvement project can be.

The first way to get an idea of the budget for your home improvement project is to decide what exactly you want done and then get quotes from contractors.

This way, when you go to your lender you already know how much you need.  Pulling out enough cash for your home improvement project will help manage your monthly cash flow and keep you from over-leveraging yourself.

The second way is to calculate the maximum amount you can take out from your home equity.

You can roughly calculate your home equity if you can estimate your home’s current value and how much you have left on your current mortgage.

Your home’s current value will be an estimate at this point, but you can get a rough idea of what you can spend on that home renovation project.

The BEST way to calculate how much of your home equity you can take out is to talk to a lender about a cash out refinance!

This way you know EXACTLY how much cash you can pull out of your home equity.  You let the pros do the hard work.

You will know how much the maximum you can spend on your home renovation/home improvement project.

Get Funding from the RIGHT Lender for YOU

At Refily.com, all you must do to get a FREE personalized lender comparison for your unique cash out refi situation is to answer our simple questionnaire.

In the questionnaire you will be asked about your needs, your current mortgage, and your home.

It takes as little as 5 – 10 minutes.

Then, our technology platform will give you a personalized lender comparison from our database of nationwide lenders!

It’s that simple!

You will get 100% transparency of estimated interest rates, APR, monthly payment, lender fees, minimum credit score, and average days to close.

The best part of the Refily.com platform is it is FREE to compare!!!  That means no extra cost to you!

All you must do is click the ‘Get Started’ button at the top of the page to begin the comparison process.

After choosing your lender, you will be contacted by the matched lender often in as little as 5 minutes (during business hours).

The Cash Out Refinance Application Process

The cash out refinance application process can be broken down into three distinct stages.

The first stage can be described as information gathering.

This is where your personal and financial information is gathered by the lender including supporting documentation.

Personal information includes your home address contact information, and current employment status, and other sources of income.

Your financial information includes about your bank accounts, retirement accounts, and any other financial assets you may have.

Your financial information also includes any liabilities you may have.  These liabilities include credit cards, debts, and leases that you owe.  Alimony and child support are other liabilities you may have.

You will also have to disclose any real estate you own and the current loans you have on your properties.

Then, you will have to submit your required supporting documentation and financial records.  

Your lender will also order a home appraisal of your home to determine the current value of your home.

The appraisal is a relatively simple process.  Someone comes out to your home and takes some measurements and pictures.  A report is created that will help the lender assign a current value of your home based on current market valuation.

The second stage is financial analysis/underwriting.

This stage is performed by the lender/underwriter to determine if you are worth the financial risk and answer the questions, “How likely is this person to pay me back?” and “How much is a safe amount to lend this person?”

This is where two ratios come into play: the debt to income (DTI) ratio and the loan-to-value (LTV) ratio.

The DTI tells the lender how much of your gross monthly income goes to revolving debt(s) that must be paid each month. The revolving debt(s) can include items such as car payments, credit card payments, and even alimony.

The LTV tells the lender how equity you will have left in the home after pulling cash out of the home equity.  Having sufficient home equity gives the lender some margin of safety just in case you don’t pay your mortgage and they have to foreclose.

With all the financial information received, the lender will determine how much of a risk you and how likely you are to pay the new mortgage’s monthly payment.

Credit scores, LTV, and DTI numbers can vary with different lenders so it may be a good idea to shop around.  The Refily.com platform makes comparing lenders and shopping around easy and convenient for you.

The final stage of the application process is closing.

This is where you sign the required documentation and choose how you want the funds delivered to you.

Depending on the information gathering process, market conditions, and how busy your lender is, you can expect closing in as little as 30 days or as much as 60 days.

Congratulations!

After receiving the cash from your cash out refinance, it’s time to get started on your home improvement project.

Define Your Home Improvement Project

It’s a good idea to know exactly what you want to have done for your home renovation project before you get started.

It can be something simple like installing a tankless water heater.

Or something more complex like adding more square footage to the home or creating a new master bedroom.

Whatever it is you want to do to your home, defining the entire project upfront will help prevent problems and misunderstandings down the line.

Having a defined scope of work will help with the planning process and determining what types of permits will be needed from the city.

Even with careful planning you still may want to make changes to the project as it progresses.

Make sure you are communicating with the contractor often and use a change order request if you want to make any changes.

Make the change request as early as possible because if you make the change too late that means work may need to be redone.  Redone work means more money and more time.

Finding the RIGHT Contractor

If this is your first home improvement project, chances are you will need some help finding the right contractor.

My favorite way to find a contractor is to get recommendations from my network.  

Find a friend or family member who can recommend someone that already has experience with the contractor.

This way I can look at the quality of their work, and I can speak to my friend/family member about working with that contractor.

Another way to find a contractor for your home improvement project is to from online searches and sites like Yelp.com or HomeAdvisor.com.

When you are choosing your first contractor there are a few things to look out for.

Are they licensed and bonded?

Having a license from the state means that they have passed a test about the standards required when building or repairing a home and have a minimum required amount of experience in the construction field.

Being bonded helps protect consumers from potential damages and acts almost like an insurance policy.

With a license and bond in place you know the contractor is serious about their business.

When you meet the contractor, pay close attention to the condition and cleanliness of their work truck.  Is it clean and well organized?  Or is the contractor using their dashboard as a trash can?

How neat and well organized their work truck/van is a good indication of how they approach their work and their habits. This includes their work quality at your precious home.

Start with a small project first with the contractor you choose.

You will learn a lot about the construction process just by having a small project done and speaking to a few contractors.

You should ask about their timeline, permits required, and how they plan their projects.

And ask about what documentation they will provide you.  Most contractors should provide a contract and give you a drawing/plan of the project.

This drawing will include items such as dimensions, location of fixtures, and even 3D mockups of the entire project.

Don’t Cut Corners

While you may be tempted to cut corners to save money, in the long run, this will cost you more money and more headaches.

Remember part of the reason you want to improve or remodel your home is to enjoy the upgrades you make to your home.

So, if you cut corners, you are just cheating yourself out of years of enjoying the investment you made into your home renovation project(s).

Often homeowners make unpermitted repairs and even additions to their home.

Don’t do this.

Going through the permitting and planning process and having the city inspect your property ensures that your will get a return on investment (ROI) on each dollar properly spent.

Think of your city inspector as your employee and your “employee’s” job is to make sure contractors do their job RIGHT.

The extra square footage you added, that extra master bedroom, or the swimming pool will be properly added to the city’s records.

Then, when you go to sell your home the value you added with your home improvement project should be reflected in a higher selling price compared to neighboring homes.

If you cut corners, not only may you lose your ROI, but you may also be responsible for unpermitted repairs or damage to the home when you sell.

This means a lawsuit down the line.

Get Started Today!

With winter in full swing, NOW may be a good time to start your home improvement project.

Why? Because contractors are slow at this time of the year.

Most homeowners wait until spring and summertime to begin their home renovation projects when the weather is better.

This is when most contractors are busy.  And with more demand for their services, contractors will certainly charge you more.

But during wintertime, contractors are slow and want to keep their crews busy.  This is the best time for you to negotiate your home renovation project!

So, click on the ‘Get Started’ button at the top of the Refily.com webpage NOW to start the lender comparison process!

Fill out the questionnaire.

Get matched with lenders.

Your future home is waiting for you and your family to enjoy!