How to fund those spring home repairs


Home maintenance
Do you watch all of those home shows on the home and garden channel? We bet you have a home repair or remodeling list that’s a mile long and a price tag that will require three jobs to pay for.

Home repair and remodeling doesn’t have to break your budget. It’s often financially impossible and overwhelming and maybe even impractical to do all of the things you want to do to your home all at once. Take a step back and take a good, long and hard look at your home inside and out and prioritize the “must do’s”, “would like to do’s”, and the “this can wait.”  The last thing you want is for your home to become a major cash and emotional drain.

Here are some tips to help you figure out how to pay for it all:

Establish a home emergency fund for small repairs and appliance replacement

While every home repair store offers its own credit card, that may not be the best option for you, especially because the interest rates may be high. Establishing a home emergency fund for small repairs such as a new faucet, shutters, replacing boards on your deck or fence, landscaping needs and appliance repairs is worth the sacrifice.

Anyone who is a homeowner knows this – appliances have a buddy system. When one goes, others tend to follow. Could you afford to replace the washer, the refrigerator, and the freezer at the same time? How would you pay for those?

What if the repair is beyond what cash you have on hand?

This is where you may have to get a loan. Larger home repairs such as heating & air conditioning systems, electrical and plumbing, additions, new roofs, painting, new siding, and so on may require you to tap your home’s equity.

A home equity loan is a loan in which you borrow against the equity you have in your home. These loans are typically five to 20 year terms.  Essentially, your home is lending you money. With a  home equity loan, you get a fixed amount of money, at a fixed interest rate, for a certain amount of time.  Interest is generally tax deductible.

A home equity line of credit is a variable rate type of loan and works similar to a credit card. You have an established credit limit based on the equity in your home and you may borrow up to that limit. Your interest rate can change over the life of the loan but you are only charged interest on the amount you have outstanding. As you make payments on your line of credit, that opens up how much you can continue to borrow against your line. And, like a home equity loan, the interest is generally tax deductible.

In either case, you will need to have your home appraised to determine your home’s value. Once the value has been established, there’s a calculation that’s used to determine how much of your equity you can borrow. The calculation is simple – once the appraisal is available, multiply the value of your home by the loan to value limit set by the financial institution. Lenders typically allow you to borrow 80%, 90%, and even up to 100% of your home’s available equity. Then, subtract the first mortgage balance to determine the maximum amount you can borrow on a home equity loan or line of credit.

Example:
Home value based on appraisal: $200,000
Current first mortgage balance: $100,000
Calculation: $200,000 (home value) x 90% (loan to value allowed by lender) = $180,000
$180,000 – $100,000 (balance owed on first mortgage) = $80,000 (maximum loan or line you can get)

Whether it’s a small repair, major kitchen renovation, hardwood floors throughout the house, a yard overhaul or a painting project, we can help you finance your home repair needs throughout every season of the year.

NOTE: Members 1st Federal Credit Union offers a variety of options to help you finance any home repairs or improvements you may need. In addition to our home equity products, we also offer a signature loan and VISA Platinum Rewards Credit Card

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