by Maurie Backman | Updated July 19, 2021 - First published on June 27, 2021
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Home improvements are on the rise with younger owners. Here's how to make yours affordable.
Millennials tend to get a bad rap -- you'll often hear that they routinely blow their paychecks on avocado toast and fancy coffee rather than use their money responsibly. But actually, millennials are taking steps to get their finances in order -- namely, by buying homes to attain the stability that comes with owning property.
In the course of the pandemic, many millennials were inspired to become property owners, according to a new survey by Angi, a home renovation network. For some, it was a matter of getting more space at a time when they were stuck at home. For others, it was a desire for more peace and quiet.
But because housing inventory has been limited during the pandemic, many younger buyers got stuck with homes that needed a lot of work. In fact, 56% of millennial buyers purchased homes that required renovations, and in that regard, they're spending a lot. Nearly 70% of millennial home buyers have a renovation budget of $25,000 or more, and close to half say they'll spend $50,000 or more to improve their homes.
If you're a newer homeowner who needs to do renovations, your options may be a bit more limited than if you were a longer-term owner. Longer-term homeowners, especially in today's market, may have access to borrowing options like home equity loans, home equity lines of credit, or cash-out refinancing. But if you recently purchased your property, you may not yet have equity to tap -- meaning, you may not own enough of your home outright to borrow against it. But if that's the case, you're not out of luck.
If you've purchased a home that desperately needs changes, and you can't tap your home equity because you haven't lived in your home long enough to build any, then a renovation loan may be a good solution for you.
As the name implies, a renovation loan lets you borrow money to improve your home. Most of these loans allow you to borrow a fixed amount that you repay in equal installments over time. And the higher your credit score, the more likely you'll be to qualify for a lower interest rate on a renovation loan.
In fact, a renovation loan is generally much more preferable to charging home improvements on a credit card. If you go that route, you could get stuck paying a lot more interest on the sum you borrow.
Now if you're a homeowner with equity, you may decide to take advantage of today's low refinance rates and do a cash-out refinance, where you borrow more than your existing mortgage balance and use the remainder to pay for renovations. But since that option may not be on the table if you bought a home recently, a renovation loan is a good alternative.
Whether you're a millennial or not, if you bought a home that needs improving, consider a renovation loan if you can't swing your costs in cash. Renovating a home could increase its value, and if you stick to a tight budget, you may find that paying off those improvements is more manageable than expected.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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