What You Need to Know About Financing Your Home Addition3 min read
A home addition is a great investment if you have a growing family or live in a multigenerational home. When the time comes to sell your home, you can also rest easy knowing that a home addition can increase the overall value of your property.
Regardless of your reasons for tackling this project, you need to think about how you will pay for your home addition. Fortunately, there are many ways to finance it.
Home Equity Line of Credit
Home equity line of credit (HELOC) is a type of financing that can be a first or second mortgage that involves the equity you have earned. If you need a flexible financing option, you should consider HELOC. By using HELOC, you can borrow against a percentage of your equity at a variable interest rate. To determine your equity, subtract how much you still owe on the mortgage from the current value of your home. However, it’s best to be cautious when putting your house up as collateral as the bank could seize it if you fail to make payments.
If you prefer not to get a second mortgage, cash-out refinancing is a good alternative. It relies on home equity and involves replacing your current mortgage with a new one that’s much more than what you owe on the house. This method will have a new interest rate and term length as well. With cash-out refinancing, the difference between what you owe and the new mortgage amount is the amount of cash you can use to pay for your home addition. It is ideal for you if you want to take advantage of a lower interest rate than the original mortgage.
If you haven’t lived in your current home long enough to use equity, there are other financing options you can utilize for your home addition project. One good example is taking out a personal loan. This method is often a faster and simpler route to access cash. Taking out a personal loan doesn’t require paperwork and inspections as with getting a second mortgage with a HELOC or refinancing. Instead, a personal loan offers a streamlined application process that involves basic information such as your income and credit history.
Credit Card or Cash
One of the best and easiest ways to pay for your home addition is by using your credit card or cash. If you plan to use a credit card, be sure to pay the balance in full every month to avoid interest charges. Remember, the interest charges for credit cards are typically higher than any other financing option. If your credit score is preventing you from accessing lines of credit, however, you can pay cash. While it may take longer to save for your home addition, having zero debt is beneficial.
Are you planning to build a home addition? You can count on the pros at Nuss Construction Company! Our team of skilled and experienced contractors can tailor our services to your specific project. To schedule a consultation, call us at (856) 988-9982, or fill out our online contact form. We proudly serve homeowners in Cherry Hill, Mt. Laurel and the surrounding areas.