Like most homeowners, you probably enjoy spending time in your garden during the summer months. And what could be more satisfying than enjoying a cold drink on a hot day while relaxing on your brand new deck extension?
Maybe you've been thinking about starting a deck project to maximize your outdoor space and enhance your home, but you don't think you can afford it? Well, maybe it's time to reconsider.
After all, home improvements can add significant value to your home, and there are several financing options available that may make your deck more affordable than you think.
For example, Housetable is a unique lending model that uses the latest technology to predict the result of your renovations before your contractor even starts working. And, in contrast to other lenders, Housetable considers what your house will be worth after it's renovated.
Of course, it's always important to lay out the pros and cons of any financing option. By fully evaluating all these elements, you can settle on the best choice for your budget. This includes weighing up interest rates, repayment terms, and loan fees.
To help you analyze your deck financing options, we've done all the heavy lifting for you. This article provides a breakdown of the major options for financing your backyard retreat. Read on to see which option best fits your personal financial needs.
Installing a deck can be an excellent investment. It can bring you and your family added pleasure in a new outdoor space. Plus, it beautifies and extends the square footage of your home, which increases your home's financial value.
Before diving into the world of home renovation loans, it's essential to consider what your goals are, how much money you hope to add to your home's value, and your borrowing power.
You can best evaluate the value of your renovation ideas by focusing on whether your desired improvements will result in a worthwhile ROI.
ROI means "return on investment." This is a key concept to understand when making any home improvements because your ROI will help you determine if the additional features you're investing in are worth the money.
Adding a deck generally falls into a good ROI category because it extends the square footage of your home, thereby adding value should you decide to sell.
However, the average cost of adding a deck to your home varies considerably depending on the building costs, materials you choose, and the square foot of your deck.
You should also decide if it's a DIY deck, a custom deck, or another type of deck installation.
Knowing deck costs in advance can help ensure you don't destroy your budget. A general rule of thumb is that you should expect to get back about 70% of the money you spend on a home improvement project as an added value to your home.
So if you're committed to adding an outdoor deck and you're confident in your ability to recoup the costs, then it's time to start looking at financing options, loan terms, and borrowing power.
A home equity loan or home equity line of credit (HELOC) is a popular option for financing home improvements. They provide a loan against the value of your home and achieve a competitive rate.
With this type of loan, you usually get the lowest rates compared to other forms of lending, such as credit cards or personal loans.
However, if you've only owned your home for a short while, it's unlikely that you have much equity. Equity is measured as the gap between your home's value and the amount you still owe in repayments.
Equity can take some time to build up, so don't be discouraged if your home isn't worth as much as you'd hoped. With a bit of patience, you'll start to see your home's value increase and be able to secure that deck loan.
On the other hand, long-term homeowners who have built enough equity can receive larger loans for their renovations.
But beware, with these revolving lines of credit, you should only make interest payments until the end of the draw period. After that, you'll need to repay the principal and interest, which is one lump sum at the end.
This can make budgeting for your monthly loan payments difficult if you're not careful. In addition, late payments or the inability to pay off your HELOC or home equity loan can risk foreclosure.
When financing a deck, a home improvement loan may be a good option. This type of loan allows you to borrow a certain amount of money for a specific purpose, such as home repairs or renovations.
However, a downside of personal loan offers or home improvement loans is that they often come with higher interest rates than other types of loans, such as HELOCs or mortgages.
This is because most home improvement loans are unsecured, which means they're not tied to your home equity. Instead, this type of loan is based on your credit rating, debt to income ratio, and credit card debt.
Home improvement loans hold more risk for lenders as they have no way to recoup their losses if you default on the loan. That means these loans attract greater interest rates, shorter payment periods, and associated transactional fees.
Therefore, you'll want to compare different loan options and shop around for the best loan terms and interest rates before deciding on a personal loan.
Refinancing your mortgage is another option to free up some extra cash for home renovations. When you refinance, you create a new mortgage loan to pay off your current mortgage, including your loan for the new deck.
While this new loan usually has a lower interest rate than your current mortgage, it becomes changeable rather than fixed. This means it can increase more over time. Plus, refinancing extends the term of your mortgage, again contributing to paying more interest over the life of your loan.
Refinancing also incurs appraisal fees and closing costs. These fees can add up, so you'll want to ensure that the savings from refinancing will be greater than the cost before proceeding.
A construction loan sounds ideal for a deck project as it allows you to borrow a set loan amount for a specific purpose, including home repairs or renovations. However, most construction loans are short-term loans, and they're not backed by your home equity.
These loans are attractive to home renovators because they're evaluated on the home's post-renovation value instead of current market value. This means you immediately increase your ability to borrow capital.
However, construction loans are more complex than they appear. They are often used for the initial stages of building an entire home, or other major home improvements, before transferring on to a longer-term loan, such as a mortgage.
The short-term nature of a construction loan attracts steep fees and interest rates. Taking a construction loan also means you are subject to regular inspections and building code checks. This added pressure may potentially deter deck builders from taking on your project.
For homeowners who think they have a bad credit score or less than excellent credit score, alternative types of loans are available, backed by the government. This makes them more secure for lenders and more viable for eligible borrowers.
Like a construction loan, using an FHA or Fannie Mae renovation loan allows you the benefit of using your home's value after renovation to maximize your borrowing power.
To qualify for these loans, your credit profile will be evaluated by your credit rating via Fair Isaac Corporation (FICO) credit scores. The FICO Score assesses your creditworthiness using these five factors:
Now that you've seen the various traditional loan options, we've saved the most innovative one until last.
Imagine if you could combine the benefits of each of the previously explained loans while minimizing the risks and gaining a competitive rate?
We're talking about a loan that evaluates the projected post-renovation value of your property (to maximize your lending power) while helping homeowners with a good credit rating (but maybe limited home equity) access the funds they need to make their renovation projects a reality.
How does it work? The Housetable Home Equity Loan is designed to help lenders more confidently fund home renovations by reducing their risk exposure, thus benefiting borrowers by reducing the average cost of a loan and its associated fees.
This also means homeowners won't face the penalties of refinancing their mortgage and accumulating more significant debt.
This breakthrough in lending is achieved through artificial intelligence (AI) technology. Our technology accurately evaluates the added value of renovating your home and implements a building contractor monitoring tool to better inform lenders in projecting labor costs, material costs, time frames, and profit margins.
And guess what? The associated savings benefit borrowers.
This model significantly increases your lending power and makes it easier for you to afford the upgrades you've always wanted. It makes this option a good alternative to traditional lending models and something you can consider if you're looking to finance a deck or other home improvement project.
By allowing you to get the most out of your home equity, you can complete your dream renovations in a way you can afford. You may even get approved for a bigger renovation budget than you originally thought.
If you're approved, this lending model potentially gives you more leeway to make the changes you desire. Want to choose premium materials or increase the size of your deck? You can, while still being able to get the same great rates.
Now that you have more information about deck financing options, you might be entertaining guests in your new outdoor living space before you know it.
To review, these are the main considerations you should address before approaching financial experts or alternative lenders:
If you are looking for a way to finance your new deck, you now know about the different loan agreements and loan terms available.
Each type of loan has different plusses and minuses, so remember to compare different lenders to get the best deal and consider associated fees, how to get the lowest rates, and the length of repayment when choosing a loan.
At Housetable, we like to see our loan as a positive combination of all of the traditional loan types, taking only the good parts and putting them together to produce a user-friendly experience with amazing results.
To learn more about this innovative development in home renovation loans, and to discover how we can help you, schedule a call with us today.
We hope this article has given you the clarity and confidence to take on your home improvement project. You're one step closer to making your vision of a morning coffee on your beautiful new deck a reality!