Funding Your Remodeling Project
Your finance options include:
A personal or bank loan
A loan from your credit union or insurance company
A loan from a savings and loan institution
Refinancing your mortgage
A home equity loan
A home equity line of credit
A Federal Housing Administration loan
Kiplinger's Personal Finance Magazine recommends borrowing against your home equity for jobs smaller than a full-home renovation. You can do a cash-out refinancing, which allows you to spend the difference between your first mortgage and your new loan on the project. Or you can go with a home-equity loan. Based on the amount of equity you have in your home, it offers a fixed-rate payment over a five-to-15-year term. For more flexibility, choose a home-equity line of credit. It sets you up with a revolving line of credit at a variable interest rate.
You can also pay for your new kitchen through one of two loan programs administered by the FHA. FHA-approved banks and other lenders actually make the loans, while the FHA insures the lender against loss. The Title I program is geared toward those with limited home equity and offers a maximum amount of $25,000 for improvements to a single-family home. It even covers the costs of built-in appliances and changes, such as lowering cabinets, that enhance accessibility.
The second FHA option-called the Section 203(k) program-offers an advantage to those taking on a fixer-upper. Under the program, the borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the purchase and the rehab of the home. The maximum amount of the loan is based on the property's as-is value and its expected market value after the work is completed.
To find an FHA-approved lender in your area, call the Department of Housing and Urban Development's customer service center at 1-800-767-7468.