How Refinancing Your Mortgage Can Lead to Home Upgrades

Thinking of refinancing your mortgage? Maybe you just submitted your refinance application because you got a better rate or you�re switching in to a fixed rate loan from a variable one? During the process, have you also thought about making some home improvements along the way? While your loan is in process, talk to your loan officer about financing options to not only refinance an existing mortgage but also provide necessary funds for a remodel or home upgrades.

The simplest way to pay for home upgrades is to pull out cash in conjunction with refinancing your mortgage. Let�s say your appraised value came in at $350,000 and your current loan balance is $200,000. You�ve had a 5/1 hybrid loan for a four years and you�ve decided to switch to the stability of a fixed rate loan. But you�ve also been thinking about redoing both your kitchen and master bath with new hardware, appliances, tile�the works. You speak with a contractor and get a quote for $30,000 for everything. With a cash out refinance, you will not only refinance your existing loan but pocket an extra $30,000 to make the home improvements on your own.

Another popular option is with an FHA 203(k) loan. The 203(k) loan not only refinances the first mortgage but at the same time provide necessary funds used to remodel or upgrade an existing home. There are two types of 203(k) loans depending upon the amount borrowed. The minimum amount for improvements is $5,000 up to the local limit for FHA loans. FHA 203(k) work must be performed by a licensed and approved contractor. The funds for the improvements are managed by a third party who will dole out the needed funds as the improvements are made.

If you�re thinking of making some energy efficient improvements, you can take advantage of the Energy Efficient Mortgage, or EEM. This is a HUD program that can be used when refinancing to finance certain energy efficiency improvements such as repairs or replacing the HVAC system, caulking, double-pane windows and more. As long as it is determined the improvements will reduce your monthly energy costs by more than the EEM payment, the program can be used to finance these improvements.

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