Finishing the basement of your modular home does have some significant benefits which include but not limited to adding an extra bathroom, bedroom, a wet bar, exercise room, movie room or fireplace. Not only is finishing your basement a great financial investment but also a great investment into your family. This not only adds to your quality of life but also increases the resale value of the home. The truth though is that most of these facelifts are not cheap. It is therefore very important to have several options to look at if you are raising finances. Here are a few tips on how to finance a basement renovation.
The first step you need to take is to get pre-approved by a lender so that you can know exactly how much you have to spend. With this figure in mind, you should give your constructors a budget that’s ten (10) percent less than what you’ve been approved for so that you can handle any other additional costs. One of the first options you need to consider is to refinance your mortgage. This is especially ideal if you have built some equity in your home. It is worth mentioning that depending on your terms, your monthly mortgage payment might remain the same with only the length of the loan being extended. Keep in mind that if you are adding something structural as opposed to simply redecorating your basement, lenders may approve your application based on the projected value of your home once you have completed the project. This option is preferred by many homeowners because it allows one to spread out the cost of the renovation over a long period of time and at your current mortgage interest rate. This is usually a cheaper option when you compare it against credit cards as well as other available loan options.
Another plausible option would be to go for a home equity loan. Such a facility does offer all the benefits of a line of credit with the only difference being that these loans are typically attached to your home’s equity. Many people tend to prefer these options since they are quite economical and often come with a preferred interest rate that’s usually lower than the prevailing market rate. This model allows you to borrow a lump sum that’s secured against your home with the payments being amortized over several years. It is important to mention that typically, the interest rate and monthly payment remain fixed throughout the term of the loan. However, this option usually requires some additional payment on top of the first mortgage and typically carries a much higher interest rate than refinancing your mortgage. Fortunately though, the closing costs tend to be lower and are therefore ideal for those who don’t want to refinance and need the renovation money all at once.
If you intend to pay for your project in stages, then the best option would be to go for a HELOC (Home Equity Line Of Credit). With this option, the lender does agree to advance the homeowner up to a specified limit, with this option, you access the funds as required using a checkbook or credit card, making it very easy to pay your contractors. It is also worth noting that the monthly payments can be lower than those you get from a home equity loan since you have the option of paying interests only on the money you have withdrawn. These loans also have adjustable interest rates unlike home equity loans which typically tend to have fixed interest rates.
Finally, you can either fund your project using your savings or go for a personal loan or line of credit. This option though is ideal for smaller projects. In addition, the fees to set up such facilities can be lower than those for refinancing the mortgage or tapping your home’s equity. Unfortunately, such loans are not secured with your home and so have a much higher interest rate. However, they are more favorable to use than credit cards. Additionally, interest on your home equity loan or mortgage may be tax deductible whereas the interest on a personal loan is not tax deductible. Irrespective of your current situation or position, it is always recommended that you consult a tax advisor