MORTGAGE BLOGPosted On November 21, 2019
Recently, many homeowners are using cash-out refinances to reinvest in their homes. Through a cash-out refinance, you can withdraw a portion of your home’s equity to finance other expenses. Home repair or renovation projects are commonly financed through a cash-out refinance because they are a way for you to reinvest in your home. You should not withdraw equity from your home unless you’ve built up a cushion of at least 20%. When used responsibly, a cash-out refinance can be a way for you to increase the resale value of your home.
Before you start any home repair or renovation project, review these tips for a stress-free experience.
Compare Contractors
When you’re taking on a major renovation, like a new addition or a kitchen upgrade, you’re going to need some help. Hiring a licensed contractor is a great way for you to alleviate some of your stress and make sure the job is done correctly and professionally. Before you hire a contractor, do your due diligence. Research local listings or ask a friend or neighbor for a recommendation. Make sure your contractor of choice has good reviews and is licensed. If you hire an unlicensed contractor and they get hurt on your property, you could be on the hook for their medical bills.
Pay Attention to the Contract
When you plan your project with your contractor, you’ll detail everything from the work schedule to when you make a payment. You should never pay the entire cost of the project up-front. Take a close look at your contract and all the details. Who is responsible for clean-up and trash removal? Is your contractor trying to add a provision to substitute building materials? If you don’t carefully review everything ahead of time you could be stuck with a bigger bill later.
Get Your Permits
State and local municipalities require permits for many types of home construction jobs including new electrical and plumbing systems. If your renovation project involves significant construction, you’ll probably need a permit to begin. When the job is done, a local home inspector can “close” the permit to confirm the work is up to code. If you do not get the proper permits or close any “open” permits you could run into trouble when it’s time to sell your home or complete another remodeling project. Additionally, your homeowner’s insurance may not cover damages to your home if you have work done without the proper permits.
Avoid Liens
A lien is defined as a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation. In some cases, a contractor or subcontractor could file a lien on your home if they have not been paid on time or at all for the work completed. If you have any liens on your home this will interfere with the sale of your home or refinancing your mortgage later. You can avoid liens by getting a sworn construction statement from your contractor ahead of time. After that, make sure you save all paid receipts from all parties who work on your home, so you can prove they have been compensated.
With today’s low rates, many homeowners are using cash-out refinances to pay for home repair or renovation projects. A cash-out refinance could be a great opportunity to reinvest in your home, adapt it for your ongoing needs, or prepare it to sell down the road. If you have any questions about cash-out refinances, please let me know.
Sources: CNBC
