How To Pay For Home Improvements
How To Pay For Home Improvements, Traditional refinancing is still tough to do, but one option will give you up to $35K for smaller projects. Many people scrimped during the recession by postponing home improvements. But if you have a baby on the way, drafty windows or a leaky roof, you may not be able to wait any longer.How are you going to pay for them?
A few years ago, if you didn’t have enough cash on hand, the obvious answer would be to refinance to draw out equity. But now, unless you have a stable job, good credit and don’t owe more on your house than it’s worth, it could be tough to find funding.
That’s because most remodeling projects don’t return what you paid for them on resale, according to Remodeling magazine. Since property values also have been sinking since the housing bubble burst, lenders are hesitant to take on more risk, unless both the home’s equity and the borrower’s ability to repay strongly support the gamble. As Cameron Findlay, chief economist for LendingTree, points out, once a borrower has become delinquent on a home loan or even a credit card bill, qualifying for a refinance becomes “exponentially more difficult.” Frank P. Donnelly, president of the Mortgage Bankers Association of Metropolitan Washington, says that most people who pull out cash from their homes to remodel or renovate need to have credit scores of 700 or above; if you refinance your first trust, you’ll need a minimum score of 620.
Even if you do qualify, it may be hard to pay for anything more than a bare-bone redo, because traditional refinancing isn’t yielding much money. According to the latest statistics by Freddie Mac, the median home plunged about 23% in value between 2007 and 2011. The value of homes of people who sought cash-out refinancing in the fourth quarter of 2011 didn’t drop nearly as much, but still fell about 4%.
So while many people are refinancing to take advantage of low interest rates or reduce the term or principal of their mortgages, not many are trying to extract their shrinking equity, Freddie reports. Rather, cash-out borrowers represent only 15% of all refinances, the lowest level in 26 years. In the fourth quarter, homeowners with conventional prime-credit mortgages took out an estimated $5.5 billion in net home equity, compared with $9.9 billion a year earlier. That’s the lowest level in 16 years, and just a fraction of the $83.7 billion drawn from homes during the peak period for cashing out, the second quarter of 2006.