How to finance a home addition
/How to finance a home addition in Lansing, MI
Additions come in all shapes and sizes. Before adding to your home, first you must evaluate your options. If you have already started researching and talking to friends and banks, your head could already be spinning.
It is exasperating. Additions are costly and often require a long-term financial commitment. You may even be thinking that your dream home will have to wait a few more years.
Let’s take it step by step. We will explain everything you need to know about financing a home addition. But first, there are a couple of things you should consider before you call the bank and your preferred contractor.
Before you call your contractor:
There are three main factors that will help you determine not only what kind of an addition you need, but also the best way to finance it.
• What do you expect from your addition?
It is likely that you already have a reason to construct a home addition. But we want to encourage you to consider any other possible reasons. When carefully planned, a single home addition can serve several purposes at once.
For instance, you couldn’t decide upon a space for your home office and decided that a home addition would be your best bet. Perhaps there is something else that you dreamed of that (with a few extra square feet) could find its purpose in your new home space?
• Is there anything else that needs to be done around the house?
Look up. Maybe it is your leaky roof or a cracked window that has been slightly bugging you? Even if it’s something small, it is better (and more cost-effective) to plan to take care of while the contractors are in the house.
• How soon do you need the addition?
Unless your answer is ‘right now’, the question is worth pondering over. Delaying the addition to the near future could give you time to plan the project better and start saving.
For example, you were debating moving but you decide that adding more living space could save you from the cost and all the trouble of moving across town. You could start a home improvement fund and start putting away a little bit every month but start talking with contractors and designers right away.
Best ways to finance a home addition
As we previously mentioned, you have several options to choose from to finance your home addition.
Paying Cash
Savings apply to only a small portion of home additions because you either had to be specifically saving for such a project or you have to dig into your saving account. Needless to say, the upside of paying with cash is that there is no long-term commitment.
However, the downside is also obvious – you must pay a sizable chunk from your savings account. Not to mention, with an average cost of $40,000 for a home addition, finding the required amount may also be a problem.
Via Credit Cards
Financing a home addition with a credit card is a much more popular option. Your credit is divided into minimum payments, and with some financial institutions you can even get 0% interest rates (for the whole credit or a certain period). In addition, if your credit is approved, you also receive promotional offers at a number of retailers. You have an option to increase the credit if there is a need.
The advantage of credit cards is that they are perfect for smaller projects that are easier to pay off during the 0% interest period. Also, you have many options to choose from. The downside of paying with a credit card is a potentially higher interest rate.
Home Equity Line of Credit or Loan
In simple terms, this is a new mortgage on your house, meaning you will have to handle a new monthly bill. Similar to credit cards, you have a myriad of options, but this case is more appropriate long-term because home equity loan payments can be divided through up to 30 years.
But the disadvantages include potentially higher rates, a new monthly bill and various costs and penalties depending on each financial institution.
Title I Loan
This is a viable option if you are planning a small to medium home improvement project. The maximum loan is $25,000. These loans are insured by the Federal Housing Administration. That’s why they are popular among private lenders. You should consider this type of loan because it can be spread out over 20 years.
The downside of a title I loan is that approval heavily depends on your credit score. And while lower rates compared to equity credit loans is a possibility, loans exceeding $7,500 require your house as collateral.
Cash Out Refinance
Ideal for bigger projects, refinancing your mortgage will not add an extra monthly payment to your bill. Instead, it will replace your current mortgage. Depending on the current equity on your house, you may end up with a little longer payment period and a minimal increase (or even a decrease) in your interest rate.
The upside of using a cash out refinance to pay for a home addition is that it allows you to take on large home renovation projects.
However, there is also a downside. As it is not a new line of credit, refinancing decisions, rates, handling costs and other details depend on your current bank.
Why Brunette Partnered With Synchrony Financial
In every endeavor, Brunette Home Improvement strives for the best customer service. And that’s also where Synchrony Financial excels. Our clients who depended on Synchrony to finance a home addition project praised their friendly staff and their outstanding personal finance platform. And a big bonus goes to Synchrony’s 0% interest rate as well as their promotional offers.
If you want to know more, please visit our Financing page on the Services tab.
Hard Time Deciding? Talk to Brunette
We know that discussing financing for your projects is probably not your favorite thing in the world. Especially when you have to read about all the options out there.
‘What to choose?’
‘How do we avoid making a mistake?’
‘This is such a commitment. Should we even build an addition?’
Trust us, we have seen the rainbow of emotions people go through when they start thinking about financing a home addition. We can help. We have helped thousands of families and businesses in Michigan.
If you feel stressed, lost, frustrated or overwhelmed because you need to make a decision, call us. We will schedule a free consultation, tell you how families in similar situations financed their home additions, and give you honest advice.
No commitments. Just a talk. Call Brunette Home Improvement today!
