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<April 2015>



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How to Finance a Home Addition or Remodel

By Stewart McClure, Regional President

finance-a-deck-additionUpdating your home with a renovation, remodel or a new addition may increase the value of your home and the enjoyment of your new living space. If you are looking to add onto your home, the first step is to determine the scope of your project. Speak with contractors to get an idea of how much your project will cost, or if you will be completing the renovation yourself, visit your local home improvement store and comparison shop online to price out products and materials.

By incorporating energy efficient upgrades into your home addition or remodel, you may qualify for a variety of tax credits, rebates and other incentives. These energy improvements include solar-electric systems, solar water heating systems and fuel cells. Learn more about the list of energy efficient rebates available in New Jersey here. To find a contractor that specializes in improving energy performance, visit the New Homes Partner Locator on the ENERGY STAR® website.

You might also want to consider speaking with a real estate broker to determine if your home renovation is a smart investment should you decide to sell your home.

Once you have determined how much you will need to spend on your project, develop a budget and decide how you will pay for it. If you don’t have the money to support a home renovation, make a plan to save for it or consider financing options based on your personal financial situation and overall goals. Some financing options include:
  1. Equity in Your Home – Home equity can be used through either a Home Equity Line of Credit (HELOC) or Home Equity Loan (HELOAN). Interest rates on home equity financing are typically lower than personal loans, which could mean lower monthly payments. A HELOC functions similarly to a credit card. The borrower has the flexibility to draw against the full amount of the line or just a portion of it and the line usually has a variable rate. A HELOAN carries a fixed rate and is structured like a mortgage, with a borrower receiving a set amount and making a fixed payment each month. The interest you pay on a HELOC or HELOAN may be tax deductible.* This blog can help you determine which home equity lending option is best for you.

  2. Refinance Your Mortgage – When deciding whether to refinance, consider how much equity you have in your home. Some homeowners may be able to refinance their mortgage for a higher amount to finance a home renovation. To weigh the pros and cons of refinancing, read our checklist.

  3. Construction Loans – Construction loans are usually variable-rate loans requiring interest-only payments during construction with the entire balance due upon completion of the project. Some lenders offer a roll over feature at the end of the building phase allowing the homeowner to transfer the construction loan to a permanent mortgage.
After you are familiar with the different financing options, talk to a lender to better evaluate which option is best for you and how much you will be able to borrow. Lakeland Mortgage Consultants are available to help you explore your loan options. For more information, visit lakelandbank.com, call 866-224-1379 or visit any of our office locations.

*Consult with your tax advisor.

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