Choosing the Right Type of Financing for Your Scottsdale Home Addition Needs
Thinking about finally turning that dream of a home addition onto your home into a reality?
A home addition – such as porches, garages, kitchen expansions, additional bedrooms or even an additional floor – can be an ideal way to increase your living space and boost your home’s overall resale value. They can make the house you occupy more livable and prevent the need to search for a larger property.
However, funding your home addition can be the toughest part. With a home loan to cover your room addition project expenses, the major roadblock to more space can more easily be removed.
It’s critical to choose the right type of financing for your home addition needs. Here are several good options to choose from if you are considering room additions in Scottsdale:
1. Home equity line of credit. A home equity line of credit (HELOC) is a revolving line of credit secured against the value of your home. This is a good option for paying for room additions when you need to pay for the project in stages. You can access the money as needed through a credit card or checking account. Most HELOCs have an adjustable interest rate and can usually provide you with the option of paying only the interest.
2. Personal loan or line of credit. If you are planning a small home addition, you might want to consider a personal loan or line of credit. These types of loans typically boast lower fees, however, because they are not secured against your home, they tend to have higher interest rates. Also, keep in mind, while many other options are typically tax deductible, a personal loan or line of credit is not.
3. Mortgage refinancing. If you have a fair bit of equity built up in your home, you can likely refinance your first mortgage for a higher amount than you currently owe, and then cash out the difference to pay for your home addition. It also might be possible to keep the same monthly mortgage payment if you extend the time period of the loan.
4. Home equity loan. A home equity loan is a second mortgage that allows you to tap into your home’s equity. Typically, it has a higher interest rate than a first mortgage, but usually has lower closing costs. Because this type of loan is secured against the value of your home, it often provides a lower interest rate than an unsecured loan. With this type of loan, you tend to get all of the money that you are borrowing up front, which can be ideal if your home addition requires you to pay a large lump sum to a contractor.
Once you have decided which type of financing works best for you, be sure to contact a lender to get pre-approved for a loan so you will know exactly how much you can afford to spend.
Finally, keep in mind that it’s a smart idea to tell your home addition contractor that your budget is about 10 percent less than your actual loan amount. Remember: Home additions can sometimes have an unexpected cost as the project moves ahead. This will help ensure you have enough money to cover them, without having to scramble at the last minute.
At Republic West Remodeling, we use a custom, proprietary software system to price your room additions project in Scottsdale. Initial estimates are always given with reasonable assurance based on the scope of work discussed. And final pricing is done with each item on a contract, spelled out in detail with a price that will not change unless the scope of work changes.