Financing Home Improvement- Which Ways are Best?

Financing Home Improvement-Which Ways are Best- 150x150Nowadays, financing a home improvement project can be done in several ways, all of which have their advantages and disadvantages. Which one is the best for you usually depends on several factors, such as the project’s cost, how much time the project will take, how much equity you have in your home and many more. Deciding which type of financing is best is entirely up to you. This article will describe several ways in which you can do it and give insight into which ways are often the best for most situations.

First of all, when starting an improvement project, the first thing that you need to do is create a realistic budget that you should strictly follow. Everything that you are planning for your home improvement projects should be stuck to once the budget is set. Changing your plans half way through can get very expensive and you may find yourself unable to finish your project. Also, when setting a budget, always overestimate costs. In very rare cases, you can end up having to spend less than you planned, but most of the time you will actually have to spend more. Having a budget will help you find out exactly how much money you need and ensure that the project is finished on time and without any major issues.

Whether you are building a garage or a pool, installing new appliances, or simply remodeling a kitchen or a bathroom, unless you have a large amount of money saved up, you are going to need financing. Find out what your budget is and how long the improvement project will take before looking at financing options. Here are the most commonly used methods of financing a home improvement project.

Cash

The most obvious choice is also the cheapest choice. Taking out a loan means that you will be paying interest and fees, making your home improvement project much more expensive. Whether you have it saved up, borrowed it from a friend or family member, cash will always be the cheapest way to finance a remodeling project. Also, because you are not using your home as collateral, you also avoid the risk of losing your home to foreclosure.

Credit Cards

With credit cards you avoid paying closing costs, as you would if you took out a loan, but interest rates will be much higher. Home improvement projects that only cost a few thousands of dollars are easy to finance with one or more credit cards, but you should only use this option when you are able to repay the borrowed money in a few months.

Personal Loans

Unlike mortgage loans, personal loans that are unsecured do not use your home as collateral. This means that, if you fail to repay what you have borrowed, your home won’t be at risk for foreclosure. Banks only offer unsecured personal loans for small amounts of money and the qualification guidelines are strict. Other lenders offer payday loans, which have very high interest rates.

Home Equity Loan

With a home equity loan you use your house as collateral, just like you would on a primary mortgage. The interest rate on a home equity loan is fixed and also tax deductible. Another downside besides having to pay an interest is that home equity loans require you to pay closing costs. Failing to repay the money, you risk losing your home to foreclosure.

Finding the perfect solution when it comes to financing a home improvement project can be difficult. Your best bet is to carefully assess your financial situation, determine how much money you have to spend, and take it from there. The best option would be finding cash for the project, but, if that’s not possible, there are a number of other ways in which you can finance your home improvement project.

Taking Out a Third Mortgage- Is That Possible?

Taking Out a Third Mortgage- Is That Possible- 150x150Taking out a third mortgage is significantly more difficult than it was a few decades ago, when this type of mortgage was a lot more common. Third mortgages were given out without any strict requirements that are necessary to protect the lender, and that resulted in a housing crisis which caused many people to lose their homes. Nowadays, lenders are much more careful when giving out third mortgages, and most are actually choosing not to give out another mortgage to borrowers who are already in the process of paying back two mortgages.

Normally, when a borrower with multiple mortgage defaults, the first mortgage is prioritized over other mortgages, making a third mortgage a high risk for lenders. In case of a default, third mortgage lenders have to wait until the lenders for the first and second mortgage recover their money. Even if a lender agrees to give out a third mortgage, the interest rates on this mortgage will be much higher than the ones on your first mortgage and even the rates on your second mortgage.

These mortgages are based on collateral, so the higher the value of the collateral, the bigger the chance that the borrower will receive the third mortgage without much difficulty. If the borrower defaults, then the asset used as collateral, usually a home, will go into foreclosure, and the lender recovers part or all of his money.

What are Third Mortgages Used For?

While first and second mortgages usually pay for the home itself, third mortgages are usually taken out in order to make home improvements or repairs, which help increase the value of the property. They can be used to make additions to the home, such as a swimming pool or a garage, or to renovate the kitchen, the bathrooms or other areas of the home.

Securing a third mortgage is difficult and you must keep in mind that you will most likely have to make monthly mortgage payments on all three of your mortgages at the same time each month, and that the third mortgage will come with a much higher interest rate than the other two.

How to Get a Third Mortgage

Getting a third mortgage begins with shopping around for a lender willing to give you one. First, talk to your current lender, which may give you a good deal if you are a good borrower, with no missed or late payments on your first two mortgages. Even if your current lender agrees to give you a third mortgage, it never hurts to look around a bit more, because you could find an even better deal with a different lender. You will need to submit several documents, and your lender will verify everything, including your credit report. Besides documents such as your Social Security number and place of employment, you will need to submit documents that prove your income, such as a W-2 form and pay stubs.

You will have to pay for an appraisal in order to determine how much equity is in your home. The lender will decide how much you can borrow on a third mortgage based on the equity in your home. If everything is in order and the lender is satisfied with the equity in your home, they will grant you the third mortgage loan and you will have to pay the closing fees.

If you have a good financial situation and enough equity in your home, taking out a third mortgage shouldn’t be extremely difficult. But keep in mind that the lender will protect himself by having very strict lending requirements for such a loan, and probably give you a much higher interest rate.