1. Not Making A Budget
Before you seek renovation financing, you should know exactly what you need to spend. Start by make a dream list of what you want changed, in order of most desired to least desired. Then, ask two contractors and two architects to review your plans for home renovations and provide you with cost estimates. Often they will do this for free to earn your trust. After you have all four estimates, carefully look them over. Find an acceptable compromise between what you want done and the quality required, within your budget.
2. Paying With Credit Cards
Some people might hand their credit card over to the the contractor to pay for their home renovations. But how much is the convenience worth? The high interest rates add so much more to the cost that you would probably have to cut back on your home renovations. Besides, you may get a discount if you pay by cash or check because it saves the contractor’s credit card processing fees.
3. Using A Line Of Credit
Homeowner’s can typically get a home equity line of credit. Equity is the difference between what is owed on your home and it’s market value. A line of credit can make renovation loans difficult to plan for because the interest rate changes with the financial market. Read the contract carefully to find the limit for increasing interest rates. Is it 1% per year? Is there a lifetime limit? Also, sometimes home equity lines of credit restrict how you spend the money.
4. Not Taking Advantage Of Home Equity Loans
As your home value rises, so does your equity. Banks offer long term home equity loans based on the amount of your equity. They are frequently used as renovation loans. This renovation financing can be added to the original mortgage and will have much lower payments that are often paid over fifteen years or longer. They also have lower interest rates because they are long term and are backed by the home’s market value. Home equity loans provide you with the flexibility of low payments so you can or a new resident can enjoy a more comfortable lifestyle.