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Complete Guide: How to Finance a Home Addition

Jul 18, 2018 | Home Remodeling

Have you been thinking about doing a room addition in Houston? It’s a great idea if you want to increase space in your home, as well as the value of your home. The knowledgeable experts at Everhart Construction can help you get the room addition of your dreams.

One of the biggest questions people ask when considering a room addition in Houston is “How am I going to pay for it?

It’s a valid question, and one that’s often the first that remodeling companies get asked.

How to Finance a Home Addition in Houston

Financing a room addition on your Houston home can sound stressful, but rest assured that information is power.

You may be used to seeing sky-high prices on HGTV, but understand that showbiz isn’t real life, so you shouldn’t expect to pay $1 million and higher for a room addition in Houston.

However, contractor fees, labor costs, and materials and supplies can add up quickly.

If you want to add on to your Houston home, but don’t have the cash on hand, there are financing options out there that are designed to fit your remodeling needs!

Option #1: Home Equity Loan or Line of Credit

Use any built-up home equity you have to finance your Houston room addition. Home equity can be used via a home equity loan or home equity line of credit.

Home Equity Loan – A second mortgage with slightly higher interest rates.

  • Typically 15-30 years

Home Equity Line of Credit – It’s just like a normal line of credit, except with equity as your loan collateral.

  • Typically have an 8- to 10-year repayment term

It’s important to note that this option will add a monthly payment to your budget. Make sure you can afford to pay it every month before you make your decision.

Option #2: Cash Out Refinance

Refinance your mortgage

If you choose this option, you’ll need to take out a loan for more than your original mortgage. That extra money will finance your room addition, and the new loan will replace your old mortgage.

The cool thing about this option is that not only does it finance a home addition, but it can also save you money on interest! If you have substantial equity in your home, refinancing can lower your interest rates without changing your monthly payment or adding on any new payments.

In addition, some lenders may approve a loan based on the estimated value of your home once the addition is completed, which is convenient for more expensive projects, like a second story addition.

Option #3: Title I Home Improvement Loan

  • FHA Title I Home Improvement Loan
  • Single-Family Home, Loan Max: $25,000 over 20 years

The third option: apply for an FHA Title I Home Improvement Loan.

An FHA Title I loan is a fixed-rate loan you can use for:

  • home improvements
  • room additions
  • home repairs
  • home rehabilitation

If you want a loan lower than $7,500, know that it will most likely be a unsecured loan, and your signature will be enough. Amounts higher than that will need collateral.

“HUD says the money can be used for anything that makes your home ‘basically more livable and useful.’ That includes buying appliances.”

That’s right! You can use this loan to pay for home addition upgrades like:

  • dishwashers
  • ovens
  • freezers
  • refrigerators
  • and more

And if you or someone you live with is disabled, you can use your loan to make home improvements that increase your home’s accessibility. Also, any energy-efficient upgrades (like solar energy) are encouraged.

The loans are issued by HUD-approved lenders and insured by the FHA, or Federal Housing Administration. While loans higher than $7,500 require a mortgage as loan collateral, FHA Title I loans don’t have equity requirements, and closing costs may be lower than home equity loans and credit lines or refinancing.

Option #4: Personal Loans or Credit Cards

This option is perfect for smaller projects, since personal loans and credit lines tend to be lower than other options. However, understand that choosing this option usually means paying higher interest rates.

Want to qualify? You’ll need:

  • Good credit score
  • Solid credit history
  • Low debt-to-income ratio

It’s important to understand that banks are not the only places you can get personal loans and credit cards. Look around online. Check out other local banks and credit unions.

Yes, you can get a personal loan from a credit union even if you aren’t a member. The perk to becoming a member is lower interest rates.

Just make sure you shop around before you make a final decision.

Finance Your Home Addition from Everhart Construction!

Ready to add on to your home with a room addition in Houston? Everhart Construction’s experience and professionalism make us the best remodeling company in the Houston area. Best of all, you can trust us to deliver a professional, beautiful remodeling experience. Contact us today to schedule a consultation!

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