Refinancing with the goal to renovate is life hitting two birds with one stone. You get to have that renovation you want as well as a lower interest rate with the right lender. Does your home need a painting overhaul? Has the time finally come to knock out that wall to add rooms or renovate the kitchen?
But first, what is refinancing?
Simply put, Home Loan Refinancing means acquiring a new loan on your property and using it to pay the current loan. This can involve using another lender or negotiating a better rate with your current one – this will depend on who is offering the best deal and features for your needs.
Refinancing can allow you to use the equity in your home to finance renovations and improvements apart from potentially saving money. In general, the more equity you have, the better since borrowers with a low loan-to-valuation ratio (LVR) may be able to get a more favorable rate than those who want to borrow 90 to 95% of the value of their property.
Seek good mortgage lenders and schedule appointments. Do this to discuss refinance terms and fees. It’s not necessary to refinance with the bank that currently owns your mortgage. It’s okay to refinance with any lender licensed to do business in your state. Take note that refinancing isn’t free. Shopping around will definitely help you find the best deal and increase your possibility of nabbing the lowest interest rate and smallest closing costs.
Check the amount of equity in your home. This is vital for refinancing as well as for a cash-out refinance. Your equity will determine how much extra cash you can take out. Your chosen lender will send a real estate appraiser to check your home and determine its current market value. For a scenario, if you owe $120,000 on your loan, and the appraiser decides that your home’s updated worth is $160,000, you will gain $40,000 in equity.
Compute how much money you’ll need to pay for remodeling. For this, you need to shop around and get estimates from contractors. After having a rough estimate of your remodeling project’s cost, and you now see how much equity you have in your home, you’ll determine whether you can rely on a cash-out refinance to pay the costs of your project. As an example, say you have $20,000 in equity, but your second-floor upgrade is estimated to cost $40,000, you’ll need to find funding outside of your cash-out refinance.
Copy important financial papers. This is your paycheck stubs, bank account statements, and income-tax returns. Send these to your mortgage lender and they’ll determine whether you have enough finances necessary to cover the new mortgage payments.
Finalize your cash-out refinance. Once the mortgage lender approves your refinance application, you’ll be required to sign several closing documents as well as pay your closing fees. After closing your loan, you’ll receive your cash.
As you start comparing home loans, it’s crucial to review the lender thoroughly as well as any upfront and ongoing fees or costs related to exiting your current loan and moving to a new one. Get started with your refinancing plan. Visit Newcastle Permanent and check out the low-interest rates on home loans with features you need to start a successful remodeling project. Best of luck!