Is your broken ceiling bothering you? Are you planning out for doing some improvements to your home?
If yes is your answer, then consider taking home improvement loans from a bank or lender. Refinancing for home improvement is the process wherein the existing mortgage is replaced with a new one. This is basically taken to enjoy more favorable terms and conditions. With this process of refinancing, you as a borrower can decrease the monthly mortgage payments, have the possibility to negotiate on interest rates and the term period. In this way, you will be able to get tax-free cash that helps you to make certain improvements to the house, like re-modeling the kitchen, extending the rooms, fixing of broken ceiling and racks, etc.
Let us look at how refinancing works for these loans.
We will tell with an example of how this whole refinancing thing works. You have purchased your home for £160,000, and now the price of your home has soared to £200,000. As you have already taken a loan for buying the house and made a payment of £135,000. So, in order to get the value of the home equity, we need to payment made from the worth of the asset, which comes to £65,000. You cannot take the whole equity amount, but rather take 80% out of the value of the house, which means £40,000 will stay in the house and £25,000 will come as cash.
This cash that you receive will be tax-free and with much lower interest rates compared to other loans that you have taken. Now, the amount can be further used for improving the home.
How to get qualified for refinancing?
1. Credit score: A good credit score will give you a chance to stand out first among the ones who are having a bad credit score. Most of the loans are accepted on the basis of credit scores. Most importantly lenders look at the score based on various factors like the loan type taken, the property that has been pledged and the amount of money that you have taken. So, everything seems to be interlinked with the loan.
2. Equity requirements: There should be some equity in your home while utilizing for a refinance. When you apply for the refinance process, the lender will evaluate the property in order to know its worth. The equity of the house will be calculated wherein the current loan balance will be subtracted from the evaluated property value; the remaining amount will be the equity value. The least total of equity you’ll need to leave behind in your home when you refinance differs by loan kind and by the lender.
The best part of this is, if you take VA loans, then you can refinance 100% of the home value, which means you don’t have to leave any equity on your house but rather take the whole value. But there is a clause for this type of loan, wherein it depends on the credit score.
3.Debt-to-income ratio: This ratio talks about your income level with that of your debts. It is calculated by linking your recurring debts of an individual and dividing it by your monthly income. If your DTI score is 50% or lower, then the lender will consider giving the loan, as this will give assurance to him that you can make the payment on time.