When you start looking for renovation financing, you’ll find plenty of one-size-fits-all options. But your project is unique, and your financial solution should be too. A generic loan might get the job done, but it won’t come with the personalized service or exclusive perks that can save you money and stress. At UDL Mortgage, we believe in a tailored approach. This guide will not only cover the standard loan types but also show you what to look for in a lending partner. We’ll explain how special programs and a white-glove experience can make all the difference in finding the best home renovation loan that truly supports your vision and financial well-being.
Key Takeaways
- Your Budget is Your Blueprint: Before you start looking for loans, create a detailed project budget that includes professional quotes and a 10-20% contingency fund for unexpected costs. This financial plan is the foundation for a successful renovation and a smooth loan application.
- Choose the Right Financial Tool: Different projects require different types of financing. A personal loan might be perfect for a small update, while a home equity loan or cash-out refinance is often better for a major overhaul. Matching the loan to your project’s scope is essential.
- Look Beyond the Interest Rate: The best deal isn’t always the lowest interest rate. To understand the true cost of borrowing, compare the Annual Percentage Rate (APR) from different lenders, which includes fees, and carefully review all loan terms.
What Is a Home Renovation Loan?
If you’re dreaming of a new kitchen or finally finishing the basement but don’t have the cash on hand, a home renovation loan could be your solution. It’s a type of financing designed specifically to cover the costs of remodeling, repairing, or upgrading your home. Instead of draining your savings or putting a massive project on a high-interest credit card, a renovation loan provides the funds you need to get the job done right.
Think of it as a dedicated tool for a specific job. These loans come in a few different forms, from home equity loans to personal loans, each with its own structure and benefits. The right one for you depends on your project’s scope, your financial situation, and your long-term goals. By securing financing upfront, you can create a clear budget, hire the right professionals, and turn your vision into a reality without the financial stress.
How They Work and What They Cover
At its core, a home renovation loan gives you access to a set amount of money to pay for your project. Depending on the type of loan, you might receive the funds as a lump sum or as a line of credit you can draw from as needed. These loans are often secured by your home, meaning your property acts as collateral, which typically results in better interest rates.
So, what can you pay for? These loans are meant to cover all the typical expenses associated with a remodel. This includes everything from the big-ticket items like materials and labor to smaller costs like permits and architectural plans. Whether you’re overhauling a bathroom or building a new deck, the loan is designed to fund the entire process from start to finish.
Why Use a Renovation Loan?
The most obvious reason to use a renovation loan is that it makes large, expensive projects affordable. Instead of saving for years, you can get started now and enjoy the results sooner. More importantly, a well-planned renovation can significantly increase your home’s value, making it a smart financial move. By investing in your property, you’re not just improving your living space—you’re building equity.
Using a dedicated loan is also a much better strategy than relying on high-interest credit cards, which can quickly spiral into unmanageable debt. It also keeps your emergency savings intact for, well, actual emergencies. With a structured repayment plan, you know exactly what your monthly payments will be, making it easy to budget for your beautiful new space.
What to Look For in a Renovation Loan
When you start comparing renovation loans, it’s important to look beyond the initial loan amount. The Annual Percentage Rate (APR) is a crucial number, as it represents the total cost of borrowing, including interest and fees. A lower APR means you’ll pay less over the life of the loan.
You’ll also want to consider the loan term—the length of time you have to repay it. A longer term might offer lower monthly payments, but you could pay more in total interest. It’s about finding a balance that fits your budget. At UDL Mortgage, we offer a variety of exclusive loan programs and can walk you through finding the perfect terms for your project and financial situation.
What Kinds of Projects Can You Fund?
Home renovation loans are incredibly versatile and can fund a wide range of projects, both big and small. You can finally tackle that dream kitchen remodel with new cabinets and countertops, or transform an outdated bathroom into a modern spa-like retreat. These loans are also perfect for major upgrades that add significant value and function to your home, like finishing a basement to create a new family room or adding a deck for outdoor entertaining.
Beyond cosmetic updates, you can also finance essential repairs like a new roof, updated electrical systems, or energy-efficient windows. Essentially, if a project improves your home’s livability, functionality, or value, a renovation loan can likely help you pay for it. It’s all about making your home work better for you.
Your Top Home Renovation Loan Options
Once you have a vision for your project, the next step is figuring out how to fund it. The world of renovation financing can seem complicated, but it really boils down to a few key options, each designed for different needs and financial situations. Whether you’re planning a small cosmetic update or a major structural overhaul, there’s a loan product out there that’s right for you. Let’s walk through the most common choices so you can feel confident picking the perfect one for your dream renovation.
UDL Mortgage’s Renovation Solutions
When you work with a dedicated lender, you get access to specialized knowledge and exclusive programs. At UDL Mortgage, we pride ourselves on providing that white-glove service to find the perfect fit for your project. Because our offerings are tailored to our clients’ unique situations, the best way to explore your options is to connect with us directly. We can walk you through our exclusive loan programs and see if options like our Closing Cost Advantage or other perks can be applied to your renovation financing. This personalized approach ensures you get a solution that truly matches your goals, not just a one-size-fits-all loan.
Home Equity Loans and HELOCs
If you’ve built up equity in your home, you can use it to your advantage. A home equity loan gives you a lump sum of cash with a fixed interest rate, which means your monthly payments will never change. It’s a predictable and stable option, often with repayment terms up to 30 years.
A Home Equity Line of Credit (HELOC), on the other hand, is a bit different. Think of it like a credit card for your home projects; you get a set credit limit and can borrow money as you need it during a specific draw period. You only pay interest on the amount you actually use, making it a flexible choice for projects with uncertain costs or multiple phases.
Cash-Out Refinancing
A cash-out refinance is another popular way to fund renovations. With this option, you replace your current mortgage with a new, larger one. You then receive the difference between the two loans in cash, which you can use for your home improvements. This strategy is especially smart if current mortgage rates are lower than your existing rate, as you could potentially lower your monthly payment while also getting the funds you need. It’s a great way to consolidate your home financing into a single loan and invest that cash back into your property.
FHA 203(k) Loans
Are you looking at a fixer-upper? An FHA 203(k) loan might be your perfect match. These government-insured loans are designed for homebuyers who want to purchase a property that needs significant repairs. The magic of a 203(k) loan is that it allows you to finance both the home purchase and the renovation costs all in one mortgage. This simplifies the process immensely, as you won’t have to juggle a separate mortgage and a construction loan. It’s an ideal solution for turning a house with “good bones” into your dream home without needing a lot of cash upfront for repairs.
Personal Loans
If you don’t want to use your home as collateral, a personal loan is a fantastic alternative. Often called home improvement loans, these are unsecured loans, meaning your property isn’t on the line. You receive the money in a single lump sum and pay it back over a set term with fixed monthly payments. This makes budgeting straightforward and simple. Because they aren’t secured by your home, the qualification process can be faster, making them a great option for smaller projects or for homeowners who haven’t built up a lot of equity yet.
Construction Loans
For those embarking on a major project, like building a new addition or a complete gut renovation, a construction loan is the way to go. These are short-term loans specifically designed to finance the building process. Unlike other loans, the funds are typically paid out in stages, or “draws,” as the project hits certain milestones. This ensures the money is being used as intended and the project stays on track. Construction loans generally have higher interest rates than traditional mortgages, and they are often converted into a long-term mortgage once the project is complete.
How to Compare Loan Terms
Once you have a few loan options on the table, it’s time to put on your detective hat and compare them side-by-side. Looking at loan terms can feel like you’re trying to read another language, but it’s all about knowing what to focus on. The goal is to find a loan that not only funds your dream renovation but also fits comfortably into your financial life for years to come. Don’t just glance at the monthly payment; look at the interest rate, the total cost over the life of the loan, and any fees tucked into the fine print. A little bit of homework here can save you a lot of money and stress down the road. Let’s break down the key factors to compare so you can choose your loan with confidence.
Compare Interest Rates and APR
First up are the two big numbers: the interest rate and the APR. The interest rate is the percentage the lender charges you for borrowing the money. The Annual Percentage Rate (APR) is a broader measure of the loan’s cost, as it includes the interest rate plus other charges like lender fees. Think of the APR as the more accurate price tag. Lenders often offer their best rates to borrowers with strong credit, so it pays to know your credit score before you apply. Comparing the APR from different lenders gives you a more complete picture of what you’ll actually pay.
Check the Loan Amount Limits
Imagine planning a full kitchen gut-reno only to find out your loan maxes out at an amount that barely covers new countertops. Every lender sets its own minimum and maximum borrowing limits, so this is a crucial detail to check early on. Some personal loans might cap at $50,000, while other financing options can go much higher. Make sure the loan you’re considering offers enough funds to cover your entire project budget, including a cushion for unexpected costs. Aligning the loan amount with your project scope from the start prevents major headaches later.
Choose Between Fixed and Variable Rates
Next, you’ll need to decide between a fixed or a variable interest rate. A fixed rate stays the same for the entire loan term, which means your principal and interest payment will be predictable and consistent every month. It’s a great choice if you value stability. A variable rate, often found with Home Equity Lines of Credit (HELOCs), can change over time based on market conditions. While it might start lower than a fixed rate, it could also increase, causing your monthly payment to go up. Consider your personal risk tolerance and budget when making this choice.
Watch Out for Fees and Hidden Costs
The interest rate isn’t the only cost associated with a loan. Be on the lookout for other expenses that can add up, such as origination fees for processing the loan, closing costs, or even prepayment penalties if you decide to pay the loan off early. Lenders are required to provide you with a Loan Estimate that details all these costs. At UDL Mortgage, we offer programs like our Closing Cost Advantage to help minimize these upfront expenses. Always read the fine print and ask your loan officer to walk you through every single fee so there are no surprises.
Look for Special Programs and Perks
Finally, don’t forget to ask about any special programs or perks that could work in your favor. Some lenders offer unique benefits that you won’t find everywhere else. For example, our Elite Partner Program provides clients with access to exclusive loan options and preferred rates that aren’t available to the general public. There are also government-backed loans designed for specific purposes, like making energy-efficient upgrades. Exploring these unique opportunities can lead to significant savings and a better overall borrowing experience, so it’s always worth asking what’s available.
How to Qualify for a Renovation Loan
Getting approved for a renovation loan might seem complicated, but it really comes down to a few key areas. Lenders want to see a clear picture of your financial health to feel confident about lending you money for your project. They’ll look at your credit history, your income, your existing debts, and the property you plan to update. Think of it as a financial check-up. By understanding what lenders are looking for, you can prepare your application and move through the process with ease.
The good news is that there are many different loan programs available, each with slightly different requirements. Whether you’re planning a small kitchen refresh or a major home addition, getting your finances in order is the first step. Let’s walk through exactly what you’ll need to have ready.
What Credit Score Do You Need?
Your credit score is one of the first things a lender will check. It’s a quick way for them to gauge your history of paying back debts. For most renovation loans, like a home equity loan or HELOC, you’ll generally want a FICO score of at least 680, with scores over 700 being even better. A higher score shows lenders that you’re a reliable borrower, which can help you secure a lower interest rate. If you’re not sure where you stand, it’s a great idea to check your credit report before you apply.
Income and Employment Requirements
Lenders need to see that you have a steady and reliable source of income to cover your new loan payments. The great thing is that you don’t have to fit into a specific box. Whether you’re a salaried employee or self-employed, you can qualify as long as you can show consistent earnings. You’ll typically need to provide proof of your income, like recent pay stubs or tax returns from the last two years. The main goal is to demonstrate that you have enough cash flow to comfortably manage the loan on top of your other expenses.
Understanding Your Debt-to-Income Ratio
Your debt-to-income (DTI) ratio is another important piece of the puzzle. This number is simply a percentage that compares your total monthly debt payments (like car loans, student loans, and credit card payments) to your gross monthly income. Lenders use your DTI to assess how much of your income is already spoken for. A lower DTI ratio is always better, as it signals to lenders that you aren’t overextended and can handle an additional monthly payment without financial strain. It’s a key indicator of your ability to manage your finances well.
Does Your Property Qualify?
For most renovation loans that are tied to your mortgage, you must be the owner of the property you intend to fix up. This is because your home serves as collateral for the loan. Lenders need to ensure the property is a stable asset, so you’ll typically need to be living in it as your primary residence. If you’re considering a government-backed loan like an FHA 203(k), the property will also need to meet certain eligibility standards. The specific requirements can vary by loan type, so it’s always a good idea to confirm the details for the loan you’re interested in.
Gather Your Documents
Being prepared can make the application process so much faster and smoother. Before you apply, take some time to gather all your necessary paperwork. This usually includes a copy of your ID, proof of income (like pay stubs or tax returns), a signed estimate or invoice from your contractor, and proof that you own the property. Having these documents organized and ready to go shows your lender you’re serious and helps them process your application efficiently. When you’re ready, you can start your application with all your information in hand.
Apply for Your Loan the Smart Way
Getting your renovation loan is a huge step, but the real work starts with planning your project and application. A little prep work now can save you from major headaches and financial stress down the road. Think of it as building a strong foundation for your renovation before the first wall ever comes down. By approaching your application with a clear strategy, you set yourself up for a smoother process from start to finish. It’s all about being thorough, realistic, and proactive. Let’s walk through the key steps to make sure you’re applying for your loan the smart way, ensuring your dream renovation becomes a reality without any unwelcome surprises.
Create a Realistic Project Budget
Before you even think about applying for a loan, you need a detailed project budget. One of the biggest mistakes homeowners make is underestimating the total cost of their renovation. Your budget should be more than just a ballpark figure; it needs to be a comprehensive list of every single expense. Break it down into categories like materials, labor, permits, and finishes. Get at least three detailed quotes from contractors to understand the real-world costs. This isn’t just for your peace of mind—lenders need to see that you have a solid plan and that the loan amount you’re requesting is based on a well-researched budget.
Plan for the Unexpected
Even the most perfectly planned renovation can hit a snag. You might open up a wall and discover old wiring that needs replacing or find unexpected water damage. That’s where a contingency fund comes in. This is a portion of your budget—typically 10% to 20% of the total project cost—set aside specifically for these unforeseen expenses. Not having this buffer is a common pitfall that can derail your project or force you to cut corners elsewhere. Building a contingency fund into your loan amount from the start shows your lender you’re a responsible borrower and gives you the financial cushion to handle surprises without derailing your project.
Avoid These Common Application Mistakes
When you’re excited about a project, it’s easy to make a few missteps on your loan application. A primary one is borrowing more than you actually need, which can lead to unnecessary debt. On the flip side, under-budgeting can leave you short on funds mid-project. It’s also crucial to look beyond the monthly payment and understand the interest rates, fees, and overall terms of your loan. Take the time to review all the details so you know exactly what you’re agreeing to. Exploring different loan programs can help you find one that aligns perfectly with your financial situation and project goals.
How to Work With Your Contractor
Your contractor is your most important partner in this process, so choosing the right one is essential. Don’t just go with the cheapest bid. Look for a licensed and insured professional with a portfolio of work similar to your project and a list of happy clients you can call. If you’re using a specialized loan like an FHA 203(k), you’ll need a contractor experienced with its specific requirements and paperwork. Establish clear communication from day one and get everything in writing, including the scope of work, payment schedule, and project timeline. A great contractor makes the entire renovation process smoother for everyone involved.
Manage Your Project Timeline
A detailed timeline is just as important as your budget. It helps you and your contractor stay on the same page and keeps the project moving forward efficiently. A good plan outlines each phase of the renovation and sets realistic deadlines for completion. It should account for everything from demolition and structural work to inspections and final finishes. Having a clear timeline helps you manage expectations and coordinate deliveries and subcontractors. It also allows you to track progress and address any potential delays before they become major problems, ensuring your project stays on schedule and your stress levels stay low.
Helpful Tools and Resources
Figuring out the financial side of a renovation can feel like a huge task, but you don’t have to do it alone. Plenty of tools and resources are available to help you get a clear picture of your options and make a confident decision. From estimating payments to comparing lenders, these resources are designed to give you the information you need before you commit. Think of them as your personal toolkit for building a solid financial plan for your project.
Loan Calculators
Before you get too deep into planning, a loan calculator is your best friend. It helps you translate big numbers—like the total loan amount and interest rate—into a simple, understandable figure: your estimated monthly payment. You can use a home improvement loan calculator to see how different loan amounts, rates, and repayment terms affect what you’ll owe each month. This is a fantastic way to test different scenarios and find a budget that feels comfortable for you without any pressure. It’s all about finding that sweet spot where your project goals and your financial reality meet.
Pre-Qualification Options
Pre-qualification is like a sneak peek into your borrowing power. Many lenders, including us at UDL Mortgage, offer a way to see what you might qualify for without it impacting your credit score. This process gives you a realistic idea of the loan amount and interest rates you could receive based on a soft credit pull and the financial information you provide. It’s a low-stakes way to shop around and understand your options. When you’re ready to see what’s possible, you can start your application with us to get a clear sense of your potential loan offers.
Comparison Tools
With so many loan options out there, it’s smart to compare them side-by-side. Online comparison tools can help you weigh the pros and cons of different lenders, but they don’t always tell the whole story. Beyond the interest rate, you’ll want to look at the Annual Percentage Rate (APR), fees, and loan terms. A great starting point is to review a lender’s specific offerings. You can explore our exclusive loan programs to see how our perks, like the Closing Cost Advantage, stack up. This helps you look past the surface-level numbers and find a loan that truly fits your needs.
Financial Planning Guides
Knowledge is power, especially when it comes to financing a major project. Financial planning guides and articles can help you understand the differences between various renovation loans, from HELOCs to FHA 203(k) loans. These resources break down complex topics into easy-to-understand information, so you can learn about the benefits and potential drawbacks of each choice. We believe in empowering our clients with information, which is why we regularly share insights on our learning hub. Taking a little time to read up can make a huge difference in the choice you ultimately make.
How to Make the Right Choice
Choosing the right renovation loan feels like a big decision because it is. It’s about more than just securing funds; it’s about setting your project up for success and making a smart financial move for your future. The best loan for your neighbor’s kitchen remodel might not be the right fit for your bathroom addition. It all comes down to your specific project, your financial picture, and your long-term goals. By breaking down the decision into a few key areas, you can move forward with confidence, knowing you’ve picked the perfect financing partner for your vision. Let’s walk through the essential factors to consider so you can make a choice that feels right for you.
Evaluate Your Project’s Scope
First, get crystal clear on the size and scale of your renovation. Are you planning a minor cosmetic update or a major structural overhaul? The scope of your project is a huge factor in determining the right loan type. For smaller, quicker jobs, a home improvement loan, which is a type of personal loan, might be a great fit since it’s not secured by your home. For larger, more expensive projects like a full kitchen gut or adding a second story, you’ll likely need a larger loan amount. In these cases, options that use your home as collateral, like a cash-out refinance or a HELOC, often make more sense.
Assess Your Financial Situation
Before you even start looking at loan options, take a moment to look at your own finances. Your credit score, income, and existing debt are the key ingredients lenders use to decide if you qualify and what interest rate you’ll get. A strong credit history and a low debt-to-income ratio will open up more options with better terms. Take some time to pull your credit report and get a handle on your budget. Understanding your financial standing helps you set realistic expectations and shows lenders you’re a responsible borrower. If you’re ready to see where you stand, you can always start an application to get a clearer picture.
Understand the Total Cost
One of the most common missteps homeowners make is underestimating the true cost of their renovation. To avoid this, you need to do more than just get a single quote. Reach out to multiple contractors to get detailed bids, and be sure to account for materials, labor, permits, and any other associated fees. A smart move is to build a 10% to 20% contingency fund into your budget for unexpected issues that pop up along the way. Not evaluating the total renovation cost can leave you short on funds mid-project, so a thorough and realistic budget is your best friend.
Consider the Tax Implications
Did you know that your renovation loan could come with some tax benefits? It all depends on the type of loan you choose. If you use a loan that’s secured by your home, like a home equity loan or a cash-out refinance, the interest you pay might be tax-deductible. This isn’t the case with unsecured personal loans. The rules can be specific, so it’s a great idea to consult a tax professional who can give you advice based on your personal situation. A potential tax deduction could make one loan option significantly more attractive than another over the long run.
Weigh the Long-Term Financial Impact
Finally, think about how this new loan payment will fit into your life for years to come. Loans that use your home as collateral, like HELOCs, typically offer better interest rates than unsecured loans. That lower rate is a huge plus, but it also means your home is on the line if you can’t make your payments. Consider your comfort level with that risk. Look at how the monthly payment will affect your budget and whether it aligns with your other financial goals, like saving for retirement or college. This decision is a marathon, not a sprint, so choose a path that supports your financial well-being.
Protect Your Investment
A home renovation is more than just a financial transaction; it’s an investment in your home and your future. Once you’ve secured the right financing, the next step is to make sure your project runs smoothly and your investment is protected. A successful renovation isn’t just about a beautiful outcome—it’s about managing the process wisely to avoid costly mistakes and unnecessary stress. From choosing the right professionals to planning for the unexpected, a little foresight goes a long way.
Think of this as your guide to safeguarding your project. We’ll walk through the essential steps you need to take, including understanding your insurance obligations, properly vetting your contractor, managing the project effectively, and planning ahead to minimize risks. By taking these proactive measures, you can ensure your renovation adds value to your home without creating financial strain. At UDL Mortgage, we not only help you find the right loan programs but also want to equip you with the knowledge to see your project through to a successful completion.
Know Your Insurance Requirements
Before the first hammer swings, it’s crucial to understand your insurance obligations. Your lender will likely require you to have adequate homeowner’s insurance in place, but a major renovation can change your needs. The project will increase your home’s value, so your existing policy might not provide enough coverage. It’s a good idea to speak with your insurance agent to discuss a policy update or a special rider for the construction period. This protects you from liability for any on-site accidents and covers your materials. Understanding the true cost of your project includes factoring in any adjustments to your insurance premiums.
How to Vet Your Contractor
Your contractor can make or break your renovation experience. Choosing the right one is one of the most important decisions you’ll make. Not using an experienced contractor can lead to costly mistakes and delays, so take the time to do your research. Start by asking for recommendations from friends or family, and then vet each candidate thoroughly. Always verify that they are licensed, bonded, and insured—ask for copies of their credentials. Check their references, look at a portfolio of their past work, and read online reviews. A reputable contractor will be transparent and happy to provide this information.
Tips for Managing Your Project
Even with the best contractor, staying involved is key to keeping your project on track. One of the smartest things you can do is plan for contingencies. Set aside an extra 10% to 20% of your total budget to cover unexpected costs that may arise during the renovation. It’s also wise to prioritize quality. While it might be tempting to cut corners to save money, skimping on quality materials or labor can lead to higher repair costs in the long run. Maintain open and regular communication with your contractor to stay informed about progress and address any issues as they come up.
Plan Ahead to Reduce Risks
A solid plan is your best defense against common renovation pitfalls. Under-budgeting is a frequent mistake that can derail your plans, so create a detailed and comprehensive budget from the start. It’s also important to be realistic about what you can accomplish within your budget and timeline. An overly ambitious plan can lead to disappointment and financial strain. By mapping out your project carefully before you begin, you can anticipate challenges and reduce risks. This level of preparation not only helps your project succeed but also strengthens your loan application by showing you’re a responsible borrower.
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Frequently Asked Questions
Is it better to use a personal loan or tap into my home’s equity? This really comes down to your project size and your comfort level with risk. A personal loan is a great option for smaller projects because it’s unsecured, meaning your home isn’t used as collateral. The process is often faster, too. However, for larger, more expensive renovations, using your home’s equity through a home equity loan, HELOC, or cash-out refinance typically gets you a larger loan amount and a lower interest rate. The trade-off is that your home secures the loan, so it’s important to feel confident about your ability to manage the payments.
How long does the approval process for a renovation loan typically take? The timeline can vary quite a bit depending on the type of loan you choose. An unsecured personal loan can sometimes be approved and funded in just a few days. Loans tied to your home’s equity, like a HELOC or a cash-out refinance, take longer because they require an appraisal and a more thorough underwriting process, often taking several weeks from application to closing. Being prepared with all your documents, like pay stubs and contractor estimates, can help speed things up significantly.
What happens if my renovation costs more than the loan amount? This is a common concern, and it’s exactly why planning for a contingency fund is so important. If you find your costs are running over, that fund is your first line of defense. If you don’t have a contingency or it’s not enough, you may need to explore options like a small personal loan to cover the difference or make adjustments to your project scope. This is why creating a detailed, realistic budget from the very beginning is the most critical step you can take to avoid this situation.
Can I use a renovation loan to finance a DIY project? Yes, you often can, but it depends on the lender and the type of loan. Some lenders are perfectly fine with you doing the work yourself, especially for smaller projects financed with a personal loan where you receive the funds as a lump sum. However, for larger loans like an FHA 203(k) or a construction loan, lenders will almost always require you to use a licensed contractor to ensure the work is done to code and the project stays on track. It’s best to be upfront with your loan officer about your plans to do the work yourself.
Will a renovation loan affect my property taxes? It’s not the loan itself that affects your property taxes, but the renovation it funds. Major improvements that add significant value to your home, like adding a bathroom or finishing a basement, will likely increase your home’s assessed value. When your local government reassesses your property, a higher value will probably lead to a higher property tax bill. It’s a good idea to factor this potential increase into your long-term homeownership budget.
