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Renovation Loans: A Possible Solution When You Can’t Purchase a House

It’s no secret: in today’s market, buying a home is tough. With prices on the rise, time on the market extremely short, and massive competition for every property, homebuyers are finding it more challenging to purchase than ever before. Yes, we’ve seen hot markets in the past, but we’ve rarely seen anything like the current market. Renovation loans could provide a solution.

If you currently own your home, but want more interior space, different amenities, or simply want to live in a newer, more up-to-date house, you may have tried the market for yourself. Like many would-be buyers, you may have found nothing but frustration. This frustration may have caused you to give up entirely.

But what if there was a different option? What if there was a way to enjoy a better home without actually purchasing a new property? Without even moving? Would you be interested?

Perhaps renovation loans would fit your needs. If you have tried the market, been unable to purchase, and can’t find a solution, perhaps a renovation loan would be the right choice.

The Need for Renovation Loans: How Much Does it Cost to Renovate?

The cost to renovate is expensive, which is why so many people need financing for these projects. Remodeling Magazine, one of the top information sources in the industry, provides national data on the cost of many projects. Some, of course, are affordable. A garage door replacement, for example, typically costs less than $4,000. But there are also many projects far beyond this total. A midrange “major kitchen remodel” for example, has an average cost of $75,571. A metal roof installation cost an average of $46,031. A wood deck costs over $16,000 on average.

Clearly these are expensive projects that most people can’t afford out of pocket. This is why renovation loans are so important.

Renovating Your Home? Here are Three Excellent Renovation Loans

Instead of moving, perhaps you could use a renovation loan to improve your current property.

1. Home Equity Loan

This type of loan allows you to borrow against the equity you have built up throughout the years. (“Equity” is the percentage of the home you own. It’s calculated by assessing the value compared to the amount you still owe.)

With this type of loan, you essentially take out a separate loan from your mortgage (they can be combined, as we’ll describe later) and use the proceeds to upgrade your house. These loans are often useful if you have lived in the home for a long period (usually five years or more is enough) and need funds for a large project, such as building a patio or doing a luxurious remodel to the kitchen. This is a loan that is given in a lump-sum, one-time payment from the lender, using your home as collateral. By using the home as collateral, you can likely secure a lower interest rate.

The rates are usually fixed, and the terms can last anywhere from 5 to 30 years.

However, they do add a second payment to your monthly budget, and there will likely be origination fees and other costs in addition to the interest.

Although the specifics of the loan will vary, to use these home loans you need a fair amount of equity. Usually about 20% is required, although some lenders may require even more.


A HELOC, which stands for “Home Equity Line of Credit,” also uses your home’s equity as collateral on the loan. However, this is not a lump-sum loan given by the lender, but it is a line of credit from which you can withdraw funds. Essentially, it works like a credit card for your home renovations, and you can borrow as much or as little as you need up to a certain limit.

The total amount you are approved for will depend on your equity, credit history, and other factors. As an example, you may be approved for a line of credit of $100,000. You can then withdraw as needed, and if you only use $50,000, you only need to repay that $50,000 plus interest.

This type of renovation loan is often a better choice if you have multiple smaller projects. Calculating the total expenses for these projects can be more difficult, so a HELOC provides greater flexibility.

The same general requirements apply, including the need for home equity, which forms the basis for these loans.

3. Cash-Out Refinance

A popular way to get money out of your home and improve your property is to do a cash-out refinance. This is especially useful if your current loan has a high interest rate or if you are struggling with your current payments in any way. With these loans, you may be able to get a more affordable monthly payment while at the same time getting the cash you need to improve your property.

Let’s say you have 15 years remaining on your home loan but are currently struggling with payments. At the same time, you want to renovate your property to add an outdoor patio space. With a cash-out refinance, you may be able to refinance into a new 30-year loan, reducing your payments while turning your current equity into cash that can be used for a variety of purposes.

Refinances, however, often come with higher costs and, if you refinance into a longer term, you will likely pay more in the long run. (Extending the terms results in lower payments but higher total costs.) All of these factors should be considered carefully before using a cash-out refinance.

That said, a cash-out refinance results in a single mortgage payment (no additional renovation-loan payment), and you can spend the cash on virtually anything, including new appliances, upgraded fixtures, or home improvements.

In a Red-Hot Market, A Renovation Loan Could Be Your Solution

If you are ready to upgrade your home, contact our staff today. We’ll help you choose the right financing for your specific needs, so whether you want a HELOC or a straightforward, lump-sum loan, we’ll do what we can to help you qualify for excellent renovation loans!