November 13, 2023
In the last quarter of 2023, mortgage rates and high house prices are negatively affecting the home improvement industry. That may lead to higher costs associated with remodeling your home.
Bloomberg published an article in late 2023 noting that home improvement spending hit major highs during the pandemic; Lowes, Home Depot, and other brands may have earned more from these endeavors during lockdown, but the numbers may be telling a different story post-pandemic. And prices are going up.
When remodeling costs rise, some borrowers only scale back their plans to the most needed repairs. But even with a less ambitious plan, funding is still needed, especially with Lowes and Home Depot prices creeping higher for raw materials and tools.
Fortunately, there are FHA home loan options that can help.
Home Renovation In 2024
With rates at highs we haven’t seen in quite some time, some borrowers may have considered alternative options for funding home improvements. Financing comes in many different forms, but not all of them are the right tools for the job, so to speak.
In the past when rates were lower, a certain number of homeowners may consider financing a remodeling job using a credit card.
That’s typically not a great solution, depending on the size and scope of the project, but some borrowers don’t want any limitations on how they use their remodeling funds and that’s where paying with a credit card can help. But it’s not necessarily the best financial option.
Remodeling Options
If you renovate a house using an FHA 203(k) rehabilitation loan, your use of the funds is restricted to what you and the lender agree upon.
Doing so means understanding some important limitations. You can’t install a pool or a barbecue pit, for example, as they are considered “luxury” improvements. FHA loan funds can’t be used for such upgrades.
When paying with a credit card, you don’t have the same limitations. But is it the right choice over the FHA rehab loan option?
Today, that approach may be more unrealistic due to elevated interest rates. Some feel it’s smarter to use an alternative, such as a rehab loan or cash out refinancing.
You can use FHA cash out refinance loan funds as a way to pay for those renovations. There are few restrictions on using the money, but there is a caveat. FHA cash-out refinance loan rules require you to have minimum equity in the home before your application is considered.
What To Know
If you haven’t owned the home very long and don’t qualify for FHA cash out refinancing, you’ll either have to choose a different credit type or wait to make the minimum amount of payments before you can apply.
Some borrowers may have already canceled plans to add a pool or other luxury add-ons thanks to higher interest rates and the overall cost of borrowing money in the current mortgage rate environment.
These homeowners may limit their home improvement projects to those deemed absolutely necessary. An FHA 203(k) rehab loan can help in such cases. It’s smart to explore your options with this loan.
Despite a restriction on luxury items and related improvements to the home, one important aspect of an FHA rehab loan? The ability to choose a smaller 203(k) rehab loan for smaller projects and a bigger version if you need major renovations.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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