Nowadays, there are a lot of ways to make a home improvement project affordable. Since it’s especially important for interior remodeling to be accomplished in a timely fashion (you don’t want to pinch your pennies, just so you can afford last year’s trends) it’s important to consider financing options before you start selecting color pallets. From navigating loan officers to wooing mortgage brokers, here is a basic guide for successfully financing the home of your dreams.
Keep your plans grounded in reality
Understanding how much money you will need vis-a-vis how much you can acquire is always a fine life skill, and when you’re considering a home transformation, this is especially true. That means taking into consideration all facets of the job.
Start by assessing which aspects will be DIY and which will be contacted, this will help you to accurately propose a figure to your future lender. That means you’ll want your contracted work solidified and articulated in terms of labor costs and material costs. Shop around for the best offer, but make sure any contracted worker is licensed and bonded.
Next, shop around for the best price on the furniture you’ll be replacing. Itemize these acquisitions, and compare what you’ll spend to the average market rate. This is an effective tactic, and shows you’ve done thorough research.
Don’t forget, too, that when you’re doing things yourself, you may require rental equipment, cleaning equipment, and funds for hauling. After you’ve taken all the known costs into account it’s always wise to add something on top for accidentals. Between 10 and 30 percent is recommended, depending on the scale of your endeavor.
Anticipate how much you’ll be offered
Being shorted on a loan is like being at the ball without a gown. It only shows that you didn’t have a clue where you were going when you left the house. Knowing how to anticipate what you’ll be offered will give you confidence, but it will also keep the rug from being pulled out from underneath your well laid plans.
But how can you accurately anticipate what the lender will give you? Easy. Any loan offer will be the direct result of three factors:
- Income (combined or single)
- Credit score
- Loan-to-value ratio (commonly referred to as LTV)
Understand the elements of a loan
Here’s a brief introduction to how these parts will play-out. To start, your lender will consider your income side-by-side your expenses. This helps them to minimize risk, which is any good lender’s raison d’etre. If your combined house payment and debt are below 36 percent of your gross income, you pass. If your house payment accounts for no more than 28 percent of the same, you pass. If you have a second mortgage, the percentage is granted more wiggle room, but still should not exceed 42 percent.
Next consider your credit score. The higher your credit grade, the better your loan will be resulting in lower interest rates, less strident terms–all the desirables when you’re borrowing. So, to ensure you rank as high as you possibly can, give yourself 12 months of advance planning wherein you make every payment on time and never spend to the maximum limit on a line of credit. Anything else, and you’ll end up with a lesser loan featuring higher interest rates, not the best way to make that remodel affordable for your family.
Finally, LTV is a percentage of your home’s appraised value from which lenders will subtract every penny you owe on your mortgage to determine what amount you can feasibly borrow. This number usually maxes out at 80 percent, but lenders are welcome to interpret the significance of this in tandem with other factors. So an excellent credit score and well balanced income can be great influences if your LTV isn’t ideal.