Are you thinking about renovating your home? Or would you like to purchase a home that needs to be renovated? A renovation loan can help you in either situation. There are multiple types of renovation loans, many of which are both flexible and affordable. But with huge financial decisions like a renovation loan, it’s easy to wonder whether it’s the “right time.”
If you’re already thinking about a renovation loan, you should likely get one sooner rather than later.
Let’s take a look at why getting a renovation loan quickly is better.
- 1 1. Interest rates are at historic lows, which means your money will go further.
- 2 2. The market is going moving quickly — whether you’re trying to buy or sell, the time is now.
- 3 3. Minor repairs today could be major (and expensive) repairs tomorrow.
- 4 4. Your home’s comfort matters; why not enjoy your home now, rather than just before you sell it?
- 5 5. Getting a renovation loan may be easier than you think — especially if you already have equity.
- 6 Your next steps
1. Interest rates are at historic lows, which means your money will go further.
If you get a renovation loan right now, you benefit from historically low interest rates. This can make a significant difference. A loan at 3 percent today is going to cost you potentially thousands of dollars less than a loan at even 4 percent in a few years. Many are racing to get into the market today because interest rates are very likely to go up (and very unlikely to go down).
If you’re looking for a home equity or home renovation loan for your existing property, you know that you’re going to have to complete these renovations at some point. It’s better to complete them when they’re cheap. If you’re looking to purchase a home with a home renovation loan (in which the renovation costs are built into the loan itself), it’s an even more urgent issue; by the time you feel “ready” to buy, you may find that the costs are much higher.
That doesn’t mean you should rush into the market just because interest rates are low, but it does mean that borrowing is the cheapest that it has ever been and likely will be for the foreseeable future. The less you pay in interest, the more you can spend; you’ll be able to get bigger loans for less money.
It’s unknown how long these interest rates will last. In general, as the economy performs better, interest rates start to go up again. As the economy performs worse, interest rates drop. Interest rates are at about as low as they can get right now, so while it’s unknown when they will go up again, they can’t go lower.
2. The market is going moving quickly — whether you’re trying to buy or sell, the time is now.
The real estate market is moving extraordinarily quickly right now. Housing prices are going up dramatically in nearly every location.
If you want to renovate a property to sell it, you should do it now. You’ll be able to sell your house for quite a lot and very quickly. Houses are going with multiple offers. This could change dramatically at any time.
However, if you’re interested in buying within the next few years, you also want to move in fast. Because it’s likely that prices will continue to rise and could price you out of the market, even if there may be a bubble later on. Bubbles aren’t necessarily bad; even the last housing crisis has been completely reversed at this point. But you don’t want to end up in a situation where you’re ready to buy a house and can’t afford one.
The market is hot. Whenever the market is hot, you want to strike. And even if you just want to renovate your property for quiet enjoyment, there could be other issues — if you wait, you could find that your renovations will cost more because contractors are going to be busy. With the housing market moving so fast, there are also new developments going up, and there are a lot of people renovating their freshly-purchased homes.
Additionally, waiting could mean that you don’t get the house of your dreams. If prices keep going up, you might find yourself having to settle for a house that’s smaller than what you wanted, or that isn’t in an area you wanted. This is true whether you’re trying to purchase your first house or whether you’re trying to sell your current house to purchase your “forever home.”
3. Minor repairs today could be major (and expensive) repairs tomorrow.
One of the most important reasons you should get a renovation loan sooner rather than later is because repairs can spiral.
Let’s say you have a minor leak in your roof. It could cost $300 to repair today. Leave it for a few weeks and it could cost $800 to repair because there’s water damage. Leave it for a few months and it could cost $3,000 to repair because of large structural damage. Another year and it could cost $10,000 to repair because of mold abatement. These issues can very quickly spiral, too, especially when it has to do with water damage or structural problems.
Most repairs will spiral. Foundation issues can start at $1,000 and end at $20,000. These will affect the value of your property. And while you might not be taking equity out of your home now, you might want to reserve the right to get an equity loan later.
It’s always best to conduct minor repairs while they’re still minor. The longer they go on for, the more expensive they become. You should consult with a contractor today to get current quotes regarding your repairs and consider how much worse it could get if you don’t repair it now.
Some repairs and renovations can save you money over time. For instance, anything that improves insulation or energy efficiency will save you money and ultimately pay for itself. Because of this, it’s smarter to complete these renovations quickly. You can also get tax credits and tax deductions for these types of renovations, which can help pay off a portion of the renovation while you also improve your home’s value.
There are very few repairs that aren’t going to get worse over time. There’s only one exception: If you want to renovate your property to cosmetically update it. If it’s only cosmetics that you’re interested in, you could be better off waiting. Trends are introduced and fade. While gray and bronze might be good today, they might not be good in a decade. So, if you’re thinking about a completely visual update, it may be more pragmatic to wait until you’re closer to selling.
4. Your home’s comfort matters; why not enjoy your home now, rather than just before you sell it?
Consider this: You’re planning on selling your home in a decade. It has a few issues, such as a patio that needs to be repaired, some drafts, or a weak HVAC system. Should you get a renovation loan now, or later?
If you get a renovation loan now, you get to enjoy your property for the next decade. You get to make sure that your home is comfortable and usable. And when you go to sell your home, it’s already going to be in good repair. You’re not going to need to worry about repairing a patio, drafts, and HVAC all at once.
If you get a renovation loan in ten years, you get to put off the loan, sure. But you may find that you’re going to need to pay a lot more, because the cost of a patio, fixing drafts, and HVAC systems have gone up. Further, you’re not going to get to enjoy those. You’ll experience frustration and discomfort every day while waiting for renovations someone else gets to enjoy.
And while your HVAC system won’t be “brand new” when you sell your house, it’s still going to be decently new. If you’ve been keeping it well-maintained and in good repair, it’s still going to be a “good” HVAC system that’s going to improve your property values.
One of the primary reasons people purchase a home is so they can feel comfortable in it and feel a sense of ownership over it. It’s better to complete repairs when you can enjoy them rather than strictly thinking about practicality and profit potential.
5. Getting a renovation loan may be easier than you think — especially if you already have equity.
The major reason many people put off renovation loans is that they think it’s going to be very difficult to get one.
In fact, getting a renovation loan is a lot easier than getting many other types of loans, especially if you already own a property and just want a loan to renovate it.
A renovation loan can be acquired with the equity that you already hold in your property. Let’s say that you have a property worth $200,000, and you owe $50,000 on it. You might be able to get a loan up to the other $150,000 of equity (though, of course, you probably don’t want to get a loan for the full amount).
If you don’t own property yet but are trying to purchase a property with a renovation loan, then the property that’s going to be renovated serves as the equity. A renovation loan for a new home purchase is usually a certain percentage of the property’s listed price. As an example, you can buy an $80,000 home with $20,000 in renovations (a $100,000 total loan) because the renovations are only 20 percent of the purchase price. But it’s very unlikely you’ll be able to buy an $80,000 home with $80,000 in renovations (a $160,000 total loan) because the renovations will be 100 percent of the purchase price.
You can never know how much a renovation loan is going to cost until you check. You should consult with several different lenders to see their rates and what they can offer you. And you shouldn’t assume that you can’t get a loan until you’ve actively tried. A few ways you can improve your chances at a renovation loan include getting better credit, getting a co-signer, and making sure the property you’re trying to purchase has been appropriately appraised.
Your next steps
Of course, whether you should get a renovation loan now really depends on your personal financial situation. While rates are very low, you’ll always get the best deals if you have a good credit score. It can be worth it to take a few months to repair your credit if you’re going to get a loan.
You may also want to save up a little if you’re close to being able to afford the renovation yourself — but, for most people, a renovation loan is going to extend greater levels of flexibility without exhausting your cash.
You can’t really know whether a renovation loan is a good decision until you’ve looked into it and run the numbers. Connecting with a loan officer and finding out your options is often the best choice.