Financing a NYC home renovation can be tricky. There are a few kinds of loans that can help.
If you’re dreaming of a second bedroom or a chef’s kitchen, you might be wondering how to finance a home renovation in NYC. When homeowners start planning a renovation, they tend to dream about things like design and architecture before figuring out the real issue: How to pay for necessary infrastructure updates that most NYC properties require.
Traditionally, there are few ways to finance your NYC renovation. The two most popular are cash-out refinance or a home equity loan. Other routes include a construction loan, and a more modern solution called a renovation loan.
Home Equity Loan or Cash-out Refinance
If you have a lot of equity and good credit, a home equity loan or cash-out refinance through a bank or credit union is an easier way to go. Both of these options offer higher borrowing power at the lowest rates.
A cash-out refinance is a new first mortgage with a loan amount that’s higher than what you owe on your house. You might be able to do a cash-out refinance if you’ve had your loan long enough that you’ve built equity. But most homeowners find that they’re able to do a cash-out refinance when the value of their home climbs. If you suspect that your home value has risen since you bought your home, you may be able to do a cash-out refinance.
A home equity loan is a second loan that allows you to borrow against the equity in your home. Unlike a cash-out refinance, a home equity loan doesn’t replace the mortgage you currently have. Instead, it’s a second mortgage with a separate payment. For this reason, home equity loans tend to have higher interest rates than first mortgages.
Renovation Loan
One of the biggest advantages of a renovation loan is that it’s based on the value of your property once all the renovations are complete: For every $100,000 invested in home improvements, homeowners using renovation loans typically see a $75,000 increase in home value. Renovation loans are also beneficial for homebuyers because they limit closing costs, combining the funds needed for a renovation with the mortgage.
Construction Loan
A construction loan is a short-term loan used to finance the building of a home or another real estate project. The builder or home buyer takes out a construction loan to cover the costs of the project before obtaining long-term funding. Because they are considered relatively risky, construction loans usually have higher interest rates than traditional mortgage loans.