Mortgage Rates and Higher Home Improvement Costs
Bloomberg notes that home improvement spending hit major highs during the pandemic; Lowes, Home Depot, and other brands may have earned more from these endeavors during lockdown, but the numbers may be telling a different story post-pandemic.
When remodeling costs rise, some borrowers only scale back their plans to the most needed repairs. But even with a less ambitious plan, funding is still needed, especially with Lowes and Home Depot prices creeping higher for raw materials and tools. Fortunately, there are FHA home loan options that can help.
Looking to Renovate in 2024?
While an FHA 203(k) rehabilitation mortgage can help, what should a borrower consider when costs are rising?
With rates at historic levels (the highest in twenty years) what some borrowers may have considered a viable option for funding home improvements in the past now seem like unthinkable choices until rates and prices start returning to earth.
For example, when rates were at lows near 5%, many considered financing a remodeling job with a credit card. That’s typically not a great solution, depending on the size and scope of the project, but some borrowers don’t want any limitations on how they use their remodeling funds.
Remodeling Finance Options
If you renovate with an FHA 203(k), you can’t install a pool or a barbecue pit, for example. When paying with a credit card, you have no such limitations. But is it the right choice over the FHA rehab loan option?
Today’s interest rates make the credit card option more unrealistic. It may be better to consider an alternative, such as cash out refinancing.
While it is true that you can use a cash out refinance loan to pay for those renovations and get little or no restrictions on how you use the money, applying for an FHA cash out refinance requires you to have minimum equity in the home.
If you haven’t owned the home long enough to qualify for this type of refinancing, you’ll either have to choose a different funding option or wait out the minimum amount of payments before you are allowed to apply.
Some borrowers wouldn’t dream of adding a pool or other luxury add-ons in 2023 or even early 2024 due to the elevated cost of borrowing money. Many are restricting their home improvement budgets to absolutely necessary things, and that’s where an FHA 203(k) rehab loan can help.
Despite the “no luxury items” restriction, the real value of an FHA rehab loan is that you can choose a smaller loan for the right size projects and a bigger version if you need major work done.
That flexibility is important in today’s more expensive home loan environment.
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