Should I get home improvement loan or refinance with cash out?
Monday, June 29th, 2009 at
9:08 pm
Lola asked:
I want to refinance my home to take advantage of lower interests rates. I also want to renovate my house since it has severe structural problems.
I want to refinance my home to take advantage of lower interests rates. I also want to renovate my house since it has severe structural problems.
Should I refinance and get cash out to use for home improvement or should I refinance without cash out and get a separate home improvement loan?
What is the difference between the two scenarios?
Tagged with: Home Improvement Loan • Interests Rates • Loan Refinance
Filed under: DIY
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If your 1st is strictly purchase money, you never got additional cash, you should probably keep that one separate because straight refis have better rates than cash out or cash out refis.
If your home has severe structural problems, though, you may be in trouble. The appraisal has to say the property is in at least average condition. Structural problems may have to be remedied prior to refiance. It really depends on the lender and how serious the issues are.
If you’ve already done a cash out refi, you may find that the rate for the whole amount is ok. Not all lenders do a “home improvement” loan. Some would only offer you a home equity loan or line of credit. On a home improvement loan, we consider it to be a “value added” instrument, so we add the cost of the improvements to the appraised value of the property. Home equity products won’t do that.
Basically, you need to compare rates. Call your regular bank, a big bank and a little local bank, and see what kind of rates they have. It would be helpful to pull your credit reports first so you have an idea of your credit score. That will influence the rate, as will the total loan to value.
A refinance with cash out would save you money in the long run. The interest rate would be lower for a 1st mortgage.
If you refinanced for a lower interest rate, you would be required to pay for the refinance and other closing cost.
Now if you turned around immediately and got a second mortgage or a Home Equity Line of Credit (HELOC) you would once again be required to pay for the loan as well as any related closing cost. On this 2nd mortgage the interest rate would be 2%-3% higher.
For any legal or tax matters you should consult with your attorney or tax consultant.
I hope this has been of some use to you, good luck.
“FIGHT ON”
it all depends on the equity in the home and how much you need for the repairs. Conforming allows cash out up to 80% but huge hits to the rate to get the cash. FHA insured loans allow up to 85% cash out now but you have an up front MIP fee that can be financed in as well as a monthly MIP fee. If you need more than that then you must get an FHA 203K loan for these repairs. Now they will not finance wants but true repairs with estimates in the file. They wil hold these funds in escrow till the work has been completed and inspected
I am a mortgage banker in TN