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Can’t get a home equity loan, but want to renovate your home?

Posted on November 24, 2008 by Ray Williams (NMLS #216267).

You may have had your home for awhile. You may have thought about putting it on the market, or turning it into a rental house as you look to buy a new home. You may have been like me and others who have taken advantage of being able to buy a foreclosed home at a reduced price from market price.

If you are one of these homeowners, you may have a consistent need or desire. You may have wanted to remodel or update your home and aren’t sure to go about it in these days of tighter credit standards. You know….. Update the countertops, add tile, refinish the hardwoods, new windows, repair the garage door, more energy efficiency…..

Unless you have $10-$30K laying around that you want to drop into your home and spend out of your hard earned savings. Even a 0% card offer from Home Depot offers drawbacks, if you can’t pay it off in 12 months ($12k / 12 months = $1000 per month). You have to watch and be careful of the terms of an offer like one from the likes of the Home Depot.

So, the big question is of course, how can you do it today?

Now follow me here! We are going to go off the example of buying your home last spring. Here is my example:

Purchase Price:
$200,000
5% down payment
Loan: $190,000
Rate: 6.75%
Principal & interest: $1,232 / month
Mortgage insurance: $145 / month
Total (before taxes / insurance) = $1,377 / month

Now let’s say you would love to update the kitchen, bath, and hardwoods but would cost you $30,000, you don’t have in equity or savings.

What if you could redo your loan, based off what your home would appraise for after the remodel? This means you could add the $30,000 to your loan (and undoubtedly your home would reappraise for higher then $230,000). How would that look on paper for the new mortgage? (Now remember to compare $30,000 over 12 months on no interest at $2,500 a month to pay it off, and there is no tax benefit in doing this either.)

Your new loan would look like this:

Loan Amount: $235,000

Rate: 6.75%

Principal & Interest: $1,524 / month
Mortgage Insurance: $108 / month
Total (before taxes / insurance) $1,632 / month

Mind you , you also have to look deeper into this. Your home would be remodeled and you would have built in equity into it as well. We all know the feeling of walking into a home that is so put together that it is the envy of all friends. That is a great feeling of comfort for as hard as we work. It offers a great sense of comfort as well once you know you now have equity in your home as well.

One example I like to use is that of a young client who bought a home using this very philosophy. YES, you can buy a house and do this all at once. He was buying at $112,000 and financing in $27,000 in repairs. His loan was going to be around $140,000, however, his home was going to reappraise at $155,000 within one month of owning it. That would equate to 10% equity on a house he just bought! Not too mention his new home was updated within 60 days of moving in. What a great feeling.

If you would like to know more about this on a home you already own and want to refinance, or are thinking of buying and would love to do it when you move in, let me know~Ray~ rwilliams@summit-mortgage.com or 303-779-0591 ext 101

 

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