Post details: Financing Your Dream


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Financing Your Dream

From the magazine, Remodeling Planning Guide
Finding the money to pay for a major remodeling project can be a daunting prospect. Here's a list of options.

Cash and FHA LoansCash and FHA Loans

If you have a savings account large enough to pay cash, it's certainly the simplest payment option; there are no forms to fill out, no appraisals to undergo, and no waiting for approvals. The one drawback is that the money you spend could otherwise be earning interest in an investment. Financing your project and putting your cash into a higher-return investment might actually cost you less in the long run. Moreover, most home improvement loans are tax-deductible, whereas a remodeling project paid for in cash is not. Check with a financial adviser to see if this is a viable option.

Home Improvement Loan
The Federal Housing Administration (FHA) offers two special loans for home improvements. The Title I loan lets you borrow up to $25,000 for a single-family dwelling at a fixed rate that the FHA insures against risk of default. You must go through an approved Title I lender.

The Section 203(k) loan is an option if you purchase a fixer-upper; you can receive a single, long-term, fixed or adjustable rate loan for the acquisition and the rehabilitation of the property. You must go through an FHA-approved lending institution for this loan.

Using Your Home's Value

Home Equity Line of Credit
This option is a form of revolving credit, for which your home acts as the collateral. The line of obtainable monies is typically set at 75 to 80 percent of the appraised value of your house, less the balance of your mortgage; your credit history and ability to pay will also be considered in the amount of credit available. Usually, the line of credit will have a variable interest rate (typically a margin added to the current prime rate); you'll also incur costs when you set up the loan.

Once you've set up the line of credit, you can tap into these funds whenever you want. However, if you are new to your home, you may have very little actual equity built up. Moreover, the temptation to overuse a line of credit -- like credit cards -- can be difficult for some homeowners to avoid.

Better Homes and Gardens



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