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How to Finance an Addition on Your Home
Additions to your home are a great way of expanding your living area while also enhancing the value of your property at the same time.
Whether you need an additional bedroom, a storage space, or just need to make your kitchen look a bit bigger, the whole process can turn out to be a costly affair for most homeowners. You will have to take into account the contractor’s fees, the cost of new material, as well as labor costs.
Unless you have a good amount of savings set aside, it can get quite difficult to finance an addition. Fortunately, there are some financing options available—including construction loans, using home equity, and more—which we go over below.
Getting Started With Financing Your Addition
There are a couple of things you need to think about when figuring out how to pay for your addition. Let’s take a look:
Determine the cost
First, you will have to assess how much money you will actually need for the project.
There is no easy way to assess the cost yourself so you will have to consult a reputable contractor who is in this business. It is always advisable to take the cost estimates from at least three different contractors so you can pick the one that offers the best rates.
Once you get the contractor’s estimation of cost, you can add a little more to it for emergencies, which will give you the final figure.
Take stock of your finances
The next step is to see how much you can afford to take out of your savings to finance the project. This will help you in determining the amount you will have to borrow through alternative means of financing.
You should also be aware of how much debt your currently have outstanding as it could impact your home addition loan eligibility.
How to Finance Your Home Addition
The following are some of the best financing options for home additions when you don’t have the required amount of cash on hand:
Pay for the Addition with Equity
Home Equity Loans
Home Equity loans are a bit like a second mortgage on your house, where you keep the home’s equity as the loan collateral. Though home equity loans traditionally have a higher interest rate, such loans are easy to secure because most lenders consider them a safe investment.
Generally, a lender can give you a loan against your home equity for up to 80% to 90% of the value of your house. The repayment terms can also be pretty generous as you could decide to pay installments over a period of 15 to 20 years.
However, the drawback is that there are a lot of additional costs involved, such as maintenance fees and closing costs. Moreover, if you fail to make payments on your loan, you will be at risk of losing your house.
Cash-Out Equity Refinancing
This method of financing is great for homeowners who require a huge investment for their home additions. For example, if you are planning to add another story to your house, you can probably consider cash-out equity refinancing.
Under this option, you basically take out a huge mortgage loan that allows you to entirely pay off the earlier mortgage loan and leaves you with enough cash to finance the home addition.
This is also one of the few ways in which you can end up with better repayment terms or lower interest rates for your home loan. However, it typically comes with a large processing fee.
Like with a home equity loan, you’re also at risk of losing your home if you can’t repay it.
Pay for the Home Addition with Credit Cards
What can be a more convenient method of financing any purchase than just handing over your credit card?
Credit cards can be an excellent addition financing option but only when the amount required is substantially low. Also, with this method, you will get the credit card bill as you regularly do.
So, you will have to ensure you have sufficient liquidity to pay off the credit card bill on time. You can also take out a personal loan to pay the credit card bill—but at that point, it may just make sense to use a personal loan from the start.
Pay for the Addition with a Personal Loan
If you do not want to put your home equity on the line, the next best way to finance your home addition is through a personal loan. You will generally be able to get some great repayment terms that suit your finances and you will never be in danger of losing your house.
However, before granting a personal loan, most lenders will typically make sure you have a good credit score. They will also take a look at your credit history, your current repayment capacity, and your debt-to-equity ratio.
Therefore, you will need to ensure all of these factors are in good standing before applying for a personal loan.
How to Get a Personal Loan With Stilt
Getting a personal loan from Stilt is a very simple, three-step process:
Step 1: Apply for the loan at Stilt. You can fill out an online application. Since a Stilt loan is aimed to provide financing options to those who are non-US citizens, you do not necessarily need a Social Security Number to apply for the loan. To be eligible for a loan with Stilt, you need to fulfill the following prerequisites:
- Physical presence in the U.S.
- A bank account in the U.S.
- A U.S. personal phone number in your name.
- A residential address in the U.S.
- A valid visa or any other legal proof of status.
Step 2: Get approved. Stilt looks at some basic things such as your credit history, if any, as well as your employability status and financial behavior, such as spending and savings. If you have a good education or work experience, it significantly increases your chances of getting the loan.
Step 3: Start repayment. Once you get the loan, you can manage the repayment schedule based on your convenience through the Stilt loan account created for your profile. You can choose to fix a date for monthly payments or you can make a one-time payment on any date of your choice provided that you do not pay less than the required monthly payment. You can also check your remaining principal balance to be paid as well as the accrued interest on your online loan account.
Get Started: Bring Your Home Addition Ideas to Life
You no longer have to worry about finding financing for your home renovation. There are plenty of options, and getting a personal loan with Stilt can be the right way to get it done for you.