Appliance And Home Improvement Purchases
Homeownership is considered a major milestone and comes with many perks, including the ability to customize your space. But with housing prices at record highs, many consumers are worried they will never own their dream home.
For those who do want to buy, it’s important to plan for unexpected expenses. Having money set aside for repairs will help prevent overspending. The best way to avoid having to shell out money for repairs is to invest in a home warranty plan. Home warranty plans provide financial protection against unexpected repairs and system replacements. But their costs and coverage vary widely.
Depending on the plan and provider, a home warranty may cover appliances or systems that help keep your house running smoothly like the refrigerator, dishwasher, water heater, furnace and more.
1. Get a Home Equity Line of Credit
Homeowners with enough equity in their homes can access that money with a home equity line of credit or (HELOC). Like a credit card, homeowners use the lines to borrow money up to a specific limit, spend it and then pay it back. But unlike a credit card, HELOCs are secured by the value of your house and lenders require you to have a certain loan-to-value ratio, a high credit score and low debt-to-income ratio to qualify.
Before applying for this type of financing, homeowners should shop around to compare rates and terms. The best place to start is by comparing financing available through banks, credit unions and mortgage companies. It also helps to know that the federal Right To Cancel rule gives you three days after signing on the dotted line to cancel your financing agreement. That can be especially helpful for homeowners seeking financing to cover large expenses.
2. Buy a Second Home
A second home can be a fun and rewarding investment, particularly if you plan to rent it out when you aren’t using it. But you’ll want to be clear about your goals before making a purchase. You’ll need to determine whether you will use the property as a vacation home or as an income generator, says NerdWallet. This will help you decide what type of mortgage loan is appropriate and how much you can afford to pay for the property.
Typically, a second home requires a larger down payment and higher interest rates than primary residences. However, you may be able to use rental income from the property as part of your debt-to-income ratio when applying for a mortgage, and there are methods that can allow you to avoid a down payment altogether. But these options can come with a high degree of risk, so they may not be a good fit for everyone. Talk with a financial advisor to learn more.
3. Refinance Your Mortgage
Mortgage refinancing is a way to reevaluate your loan terms and potentially lower your interest rate and payment. It could also allow you to cash out some of the
equity in your home. “This can be a very useful tool, whether to pay for some improvements or if you’re a cash-strapped owner and want to free up some money,” English says. You can prequalify for new mortgage loan terms to see what you may qualify for or apply with a lender to get started on the process. You’ll need a credit report, income documentation, W2s or tax returns, bank statements, debt documents and more to complete the application.
Refinancing typically requires a significant amount of paperwork and will have a temporary negative impact on your credit score, although it’s usually only six months. It’s important to think through the costs and benefits before you refinance, as it can take years to break even. It’s generally a better idea to use your home equity for value-boosting renovations or to consolidate high-interest debt.
4. Get a Home Equity Loan
Tapping into home equity can be a wise move when it comes to financing major purchases. It often makes more financial sense than charging items to a credit card, taking out a personal loan or drawing on retirement savings. However, homeowners should carefully consider whether a home equity loan will fit into their long-term budget plans and should seek advice from a mortgage expert before pursuing one.
In order to obtain a home equity loan, homeowners will need to meet certain lender requirements such as having adequate income and a low debt-to-income ratio. They will also need to demonstrate a history of making on-time mortgage payments.
Before applying for a home equity loan, homeowners should work to improve their credit score and address any errors in their credit reports. They should also try to pay down large balances on credit cards, if possible, in order to improve their debt to-income ratio. Then, they should shop around for the best rates and terms.