A homeowner’s work is never done.
Ask anyone who’s owned a home and they’ll tell you of their “pending projects”; things they’d like to change, build, or upgrade for which they haven’t yet found the time or money.
And while some homeowners choose home improvements for aesthetic reasons, others choose projects meant to increase their respective home values; or to introduce cost-saving measures into everyday living.
“Green projects”, such as the installation of energy-saving, airtight windows and gray-water systems, can meet both of these goals.
Money-Saving Home Improvement Projects
“Green” home improvement projects are projects which introduce energy-saving and environmentally-friendly concepts to a home, including conservation and reuse.
Examples of green projects include :
- Replacing or insulating doors
- Replacing or insulating windows
- Installing energy-efficient appliances and heating and cooling systems
Radiant flooring and solar panel installation are two other such projects.
Earth-friendly projects can reduce a homeowner’s monthly utility bills and may also increase the home’s resale value. In time, the cost of the home improvement project is often recouped, and monthly savings are made.
Other resale value-improving projects include making upgrades to a lighting system, improving electrical systems for efficiency, and reworking a home’s plumbing system. Green projects in kitchens and bathrooms has also been shown to increase a home’s resale value, so long as the projects remain “traditionally-styled”.
Finance Home Improvements With A Mortgage
Home improvement projects can be costly, depending on their nature. For example, replacing a front door can be relatively cheap, but the cost to replacing a home’s windows can be costly.
This is especially true for larger homes with many windows.
Expanding the size of your home can be costly, too — sometimes exceeding the home’s current value. Home improvement projects like be paid with cash, or via credit card, depending on your contractor. However, you may prefer to pay for your home improvement using your existing mortgage.
There are three common mortgage types homeowners use to pay for home improvement.
Cash Out Refinance
The cash-out refinance is exactly what its name implies — it’s a mortgage transaction which increases your existing loan size, providing you with “cash” at closing. Cash can be directed to a specific contractor, or it may be paid in the form of a cashiers check. The cash can be used for any purpose, home improvement or otherwise.
Cash-out mortgages are readily available in today’s mortgage market. They can be used with conventional financing via Fannie Mae or Freddie Mac, via the FHA and VA, and are available in the jumbo market, too.
Loan types may have cash-out “caps”, though. For example, the FHA will allow you to take cash out of your home up to 85% of your home’s value and the VA, by contrast, will allow a cash-out refinance to 100% LTV.
Jumbo mortgages lenders vary cash out limits based on borrower loan size and credit score.
FHA 203k Construction Loan
The FHA 203k program is a mortgage meant specifically for home construction projects. The 203k program allows you to add your estimated home repair costs to your existing loan balance, and to bundle the financing into a single financial transaction.
FHA 203k mortgages don’t carry a specific loan-to-value limitation. 203k loan sizes are limited by FHA local loan limits. In 2014, FHA loan limits range as high as $625,500 and as low as $271,500
As two examples, homeowners in Chicago, Illinois are limited to a $365,700 loan size with the FHA 203k construction loan. Homeowners in Montgomery County, Maryland, however, get access up to $625,500.
VA Home Improvement Loan
For homeowners with VA loan eligibility, the VA Loan Guaranty program offers a specific product for home construction and home improvement projects, and monies can often be borrowed without a separate appraisal.
VA home improvement loans are flexible and feature the same low rates as the typical VA home loan, and allow up to 100% loan-to-value.
Get Construction Loan Mortgage Rates
For homeowners planning a home improvement project, or for buyers looking for construction loans, there are multiple mortgage products from which to choose. Each program has its benefits and are worthy of comparison.
Get started by looking at mortgage rates, and how much cash you can access.