When planning your budget for kitchen remodeling in Bountiful, Syracuse, West Point, or North Salt Lake, you should consider a home equity loan more than any other financing option.
Any loan secured using your house indeed comes with tremendous risk since you might lose the roof above your head if you discontinue repayment. However, a home equity loan is perhaps the most abundant source of funds for significant home improvements.
According to HomeAdvisor, the average kitchen remodel cost in the United States is nearly $24,000. If you have finer materials and deal with several renovation challenges, you might need to spend up to $250 per square foot. Do the math, and a typical personal loan and several moderately used credit cards will likely fall short.
Although a home equity loan is the most viable product on the market if you do not want to refinance your mortgage, taking it out could backfire on you. Watch out for these signs to determine whether you should apply for it.
You Have a Low Debt-to-Income (DTI) Ratio
Paying down a single mortgage is hard, let alone two. Yes, a home equity loan is a second mortgage since it will involve the same collateral: your house. While this loan’s interest rate is fixed, it is still difficult to manage its monthly payments along with your other liabilities.
Take a long hard look at your finances. Make sure you are not heavily indebted and receive an adequate income to handle another big financial obligation responsibly.
When taking out a mortgage, the highest DTI ratio most lenders find acceptable is 43%. You might want to follow the same logic, so you would never get behind with your home equity loan bill and still have enough room for your other expenses.
You Have Excellent Credit
Granting a request for a second mortgage is a significant decision not taken lightly by any lender. That is why you should expect your credit to be highly scrutinized. Your prospective lender might look for excellent credit to ensure that you have demonstrated in the past that you could manage your debts properly.
As far as the latest FICO scoring models are concerned, the “excellent” credit score range starts at 800. Find out how far are you from achieving such a feat. If your credit scores are in the 790s, wait until you become a member of the 800 club so that you can improve your chances of getting qualified.
You Have No Plans of Moving
Tapping your home equity requires a long-term commitment. You could sell your house and pay off your two mortgages in the future if you want, but it would not be wise.
A home equity loan can come with a prepayment penalty, so paying it off ahead of schedule to save on interest can ironically make it even more expensive. To maximize the benefit of this second mortgage, the key is allowing it to run its course.
Home equity loans are left and right, especially with the proliferation of financing marketplaces, but they are not for everyone. Consider other products and understand how they work to narrow down your options.
If you pick the right financing option, whether it is a home equity loan or not, you can get your kitchen remodel started with a lower chance of running out of funds in the middle of the construction.
