Budgeting For Your Remodeling

BUDGETING  FOR  YOUR  REMODELING

One of the most important concerns you will deal with in the remodeling process is the budget.  How much money can you afford to spend on your project?  This information will help your remodeler determine if your expectations are realistic.  For example if the whole-house addition of your dreams is going to cost more than $100,000 and you only have $40, 000 available, you must seek alternate financing or scale back your plans.  You need that information before you and your remodeler spend a lot of time and money designing a project you cannot afford to build.

If you’re planning to borrow from the bank, savings, institution, credit union, mortgage banker, or finance company, first determine how much money you can obtain.  Qualifying for a loan ahead of time saves time and disappointment for everyone.

Most lenders follow the 28 to 36 rule to determine how much money you can borrow.  Loan officers prefer to see your monthly housing costs – including principal, interest, taxes, and insurance – below 28 percent of your gross monthly income.  Total monthly payments for housing and all other consumer debts (such as credit card payments, car loans, student loans, or alimony) should not exceed 36 percent of your gross monthly income.

Sources for Financing Your Remodeling Project

Personal Savings

According to the Federal National Mortgage Association (Fannie Mae), about half of all homeowners use personal savings to finance their remodeling plans.  If you are a homeowner just beginning to think about a project, start saving now.  Even small regular savings can build up money for a down payments.  If you save the $5 or more you spend for lunch every day, in a month you will have more than $100.

Equity-Based Financing

If you purchased your home several years ago and you have some useable equity, consider these three financing options. Home Equity Lines of Credit, Home Equity Loans (second mortgage), or Cash-out Refinancing your Mortgage.

Government-Backed Financing Options

What if you have little or no equity in your home or you want to purchase a home in need of substantial remodeling? There are several government-backed programs can help you do just that (http://www.govloans.gov/loans).

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