Guest Blogger: How You Can Afford your Next Renovation Project

Guest Blogger #582, Entry #1331, June 23, 2012

All homeowners harbor at least a few issues with their current place of residence. Perhaps the avocado wallpaper and shag carpet in the basement make you feel like you’re stuck in an episode of That ’70s Show, or the leaky faucet in the master bath has got you pulling your hair out in frustration as you try (and fail) to fall asleep at night. Maybe you’d like to fill in those cracks in the driveway, build out the attic to make the space usable, or get rid of the wall between the kitchen and dining room to create an open floor plan. Or it could be that the space has become insufficient for your growing family and you’d rather build an addition than move. Whether your problems are small or large, the cost of fixing them to make your house the perfect fit for you and your family can quickly add up. This is why many homeowners seek a home construction loan to get the job done. But what do you need to qualify?

Before you picture your renovation, how will you afford it?

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Consider your credit score

When qualifying for any loan, the first thing you’ll want to consider is your credit score. And if there are any problems you should definitely address them before you apply for a loan. You can order a copy of your credit report for free from annualcreditreport.com to see your credit score and any black marks (like debt collection). Even if you have paid off debts, the lender has to submit this information to regulatory bodies before it can be wiped from your credit report, so you may have to get proactive and make some calls if the black marks persist. You might also need to balance out your debt-to-income ratio (i.e. pay down some debts, like credit cards or car payments) before you can gain loan approval (although equity in your home can help).

Where should you look for a lender?

Once your credit is in order you should start thinking about where you want to get a loan. There are a couple of options to consider. First, you could go with a national or international lender. The upside is that many have programs specifically for home construction loans with tons of options for loan amounts and repayment schedules. The only problem is that they may not offer you the best rates simply because they are more likely to base them on national averages rather than your local economy. So you might also want to look into reputable local banks or credit unions. They may not be able to offer you as much money as their larger competitors (not necessarily a bad thing) and their options might not be as diverse, but chances are good that they can get you a better rate.

Before starting your renovation think of your lending options

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Determine how much money you need

Now that all of your ducks are in a row and you can get pre-qualified for your loan, you need to think about how much money you actually need and what sort of loan you want. Keep in mind that these projects nearly always go over budget, so it’s a good idea to factor in a 20% overage on costs. And you need to figure out if a variable or fixed rate is better for you (keep in mind that rates are not likely to get much lower at this point) and if you’d rather go with a short- or long-term payment plan. Once all of the decisions have been made, there’s nothing left to do but call in contractors to check out the site and give you bids so you can get started on renovating your home.

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