In some states, accessory dwelling units, which are also called "granny flats," are enjoying a boom because regulators see them as ideal for alleviating the pressing issue of affordable housing being at historically low levels.
Any home appraiser will tell you that the right addition can have a very positive impact on property value, but these projects often come at a considerable cost. Here are some ideas on how you can get financing for major home improvements.
Home Equity Lines of Credit
These loans are essentially second mortgages that are usually recommended to borrowers who have at least 20% equity to work with. Some HELOCs include a credit card that you can use for shopping at your local home improvement store in case your home addition project is being completed on a DIY basis.
When visiting a home improvement store, consider doing some thorough research in order to determine what kinds of tools and materials your project will require. Purchasing sturdy tools will help you complete your DIY projects without worrying about buying replacements.
Title 1 Loans
Your home addition project may require major work such as metal roofing or solar panels. Adding durable roofing to your home can be a great decision since it will minimize the need for costly repairs in the future. Investing in quality materials for your home can help you save money over time.
When handling major projects, you may want to ask your mortgage broker about applying for a Title 1 Loan guaranteed by the Department of Housing and Urban Development. The paperwork may be more extensive than what you are used to, but the lower interest rates make these loans very attractive to qualified homeowners.
If you are already carrying an FHA primary mortgage, this loan makes even more sense.
Consumer Credit Cards
This type of financing is more adequate for homeowners who plan on completing most of their addition projects by themselves, and who only expect to spend a few thousand dollars.
The best strategy is to apply for cards issued by the credit center of major home improvement retailers in your area; they may be willing to offer better credit and payment terms because they know you will be using their cards right at their stores, thus boosting their sales.
Cash-Out Refinance
Before getting a second mortgage, you may want to think about refinancing your first mortgage and signing off on a higher balance that will give you cash at closing. Ask an appraiser to estimate how much property value can be gained with the addition; you do not want to take too much cash out and end up with little equity.
other related articles of interest:
The Importance of Mortgage Brokers in Home Financing
When Deciding to Buy a New Home, Consider These Home Financing Tips
You may even be able to raise your property value significantly by making some inexpensive additions. If you plan on selling your home in the future, think about some features that potential buyers might appreciate when looking for property to purchase.
Understanding what your home needs can help you maximize value in your investment.
In the end, even though a home addition can eventually pay for itself, you should do some research on local market conditions and forecasts before starting the project. The last thing you want is to invest too much in an improvement you will not be able to profit from in the long run.
With a little bit of research, you will be able to complete the home improvement projects you have been wishing for while adding to your property’s value in the process.
Image Credit: tips for financing home additions by twenty20.com
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