When it comes to finding the right home loan, there is no shortage of choices, and making the right decision can seem overwhelming. Some types of loans are better than others – especially when it comes to a specific project like a home remodel.
Barry Durhman is a mortgage loan originator with Guardian Mortgage, a division of Sunflower Bank. We sat down with Durhman, a true expert in home loans, to get his advice on the best loans for your next home renovation project. Here are his tips:
DECIDE ON A LUMP SUM OF CASH OR INCREMENTAL PAYMENTS
If you are looking to renovate your home, Durhman says the first thing to ask yourself is this: Do I need all the cash upfront or in increments? This primary factor will dictate what loan options are available to you.
CHOOSE BETWEEN REFINANCING AND LIQUIDATION
Once you know how you need the money – lump sum or incremental – you can decide whether you want to refinance your first mortgage or liquidate the equity in a “cash-out” refinance. “The good news is that financing the renovation costs into your primary mortgage makes the interest paid tax deductible,” says Durhman.
Durhman adds that some homeowners can look into a second position mortgage, where you will receive all the funds upfront or in a Home Equity Line of Credit (HELOC) and then advance the funds as needed throughout your home improvement project. But this option comes with drawbacks. “If considering a second position mortgage where your first position mortgage remains as is, you will be subject to higher rates than refinancing your first mortgage and the interest may not be tax deductible,” says Durhman.
CONSIDER THE TIMELINE
“Renovation loans can take longer to get approved than a traditional refinance loan,” says Durhman. This is because the approval process must include not only the borrower’s credit approval, but also approval of the general contractor and the renovation project. “This requires added documentation about the general contractor and project,” says Durhman, “which is submitted to the appraiser to determine the as-completed value of the home. After the renovation loan closes and funds, the renovation project begins and there is a detailed process followed to fund the project.”
TAKE ADVANTAGE OF CURRENT LOW RATES
If you have the equity in your home, Durhman says the best route right now, with current low interest rates, is to get a traditional cash-out refinance or add a second mortgage, like a HELOC. “This avoids the need to have the more detailed approval project and post-closing draw process,” he says. “However, renovation loans meet a valuable need in the market when you do not have the equity present in the home to access the funds through a cash-out refinance or HELOC.”
Above all, Durhman advises loan shoppers to consider three components of their renovation loan: rates, fees and turn-times on the underwriting. This will give you a clear idea of how much the project is going to cost you, and how long it’s going to take, so there won’t be any surprises. These will vary between loan providers, so it’s important to do your research and find the best match for your needs.
Do you have a gamer kiddo who’d play video games 24/7 if you didn’t cut them off? If their joystick is starting to resemble a permanent appendage, maybe they should design their own games.
Ed and Jeanene Gage, owners of Code Ninjas in Greeley teach 5 to 14-year-olds to write video game code. Drop the kids off for afterschool enrichment or summer camp.
“Kids are excited to come here. They are learning something fun, valuable and preparing for their future,” Gage said.
Remember Pong? In this very basic, no frills game, the player controls a bouncing ball with a paddle. In Gage’s classroom, creativity comes in many flavors. Out with the ordinary ball and paddle.
“Some kids bounce around a dinosaur or alien instead of a ball. The paddle can be customized to … one kid used a lightning bolt for the ball and a guitar was the paddle.”
In just 30 minutes, kids can build their own game, he said.
Each class run two hours a week-either two hours two days or two hours one day. Masks are required with up to 12 kids per class for social distancing.
Summer Camp is offered too.
“Each summer camp is a week long for $250, 3.5 hours, five days a week, Monday through Friday. It’s the equivalent of two months of a standard coding class at a significant discount.”
Alternative learning programs
When it comes to educating your children, one size fits all doesn’t usually work. That’s because each learner brings certain strengths, weaknesses and different personalities. If traditional education no longer works for your family, maybe it’s time for an accredited online program.
Designed for middle and high school students, this free public online school with Summit Education Group/Global Education Solutions offers a blended approach where students learn online and onsite, if they choose, says Alex Tapia, associate regional director, in Greeley.
Hands on activities onsite include things like tutoring or creating garden projects. Students paint ceramic pots and plant tomatoes, spinach and romaine lettuce, says Tapia.
“Kids who come into the school spend up to two hours on activities and socializing.”
Many parents dream about raising straight A students. But let’s face it not all students care about 4.0 GPAs. If students fall behind in credits – from too many absences, skipping class, or worse, truancy charges – graduation dreams feel impossible.
To address these students, the school helps kids make up lost credits and get on track for graduation, Tapia said. Even when students opt for a GED, some enroll in the program and finish with a high school diploma, he added.
“A 20-year-old can get a high school diploma. It’s a popular option for a free high school diploma.”
There are a few things to think about when shopping around for homeowners insurance.
“Foremost is the company, you want a reputable company. Usually someone you’ve heard of would be good,” said Sue Helfrich, owner of Helfrich and Associates, an Allstate agency.
“Will they be there at the time of the claim? (A home) is their biggest asset, don’t cut corners here.”
Next up is representation. Is the customer willing to call a 1-800 number and get a different person each time, or do they want a local person with whom they can build a trusting relationship?
Then there’s the property itself. When purchasing a home, the most important question for an insurance agent is, “How old is the roof?” The roof needs to be able to sustain substantial hail and wind events in Colorado. An insurance agent has 30 days after a client closes on a home to go inspect the new home. If the agent says a new roof is needed, that’s unfortunate for the client since they have already closed.
Helfrich said that Fort Collins now requires roofs to be hail-resistant on new construction. Greeley has not done this yet.
All basic policies usually cover four main items: the dwelling itself; detached structures like sheds, garages and fences; personal property; and liability if someone gets hurt on the property. Helfrich said liability is critical in our litigious society. Anyone, even if they’re trespassing, can sue a homeowner if they get hurt on your property.
Helfrich said it’s important to pay attention to what a policy doesn’t cover, rather than what it does cover.
You want to make sure there isn’t a limit to what is covered under basic wind, hail, fire, or lightning coverage. For example, the insurance policy might not cover replacing pipes if the pipes freeze.
You also want to make sure that if you make a claim, you will get “replacement cost” rather than “actual cash value.” Replacement value means that if a television is five years old, many policies will replace the TV with one of similar value by today’s standards. Actual cash value would mean the policy would depreciate that TV and give you the cash for the current value of that old TV (maybe $50).
“The insurance’s obligation is to put you in the same position as before the loss,” Helfrich said.
Usually, home insurance claims are settled on replacement cost value, although there might be an exception if the home is really old. Cars, on the other hand, are settled on actual cash value.
When weighing the cost of homeowner’s insurance, pay attention to the deductible. Like, health insurance, a slightly higher deductible offsets the cost of the premium. (The premium is how much you pay annually for the insurance, the deductible is how much you pay out-of-pocket in a claim before receiving money back for that claim). But you want to make sure you can pay that deductible if you have a loss.
In health insurance, a young healthy person might risk a higher deductible, knowing they’re likely to be healthy for longer. Similarly, in the house insurance world, the age of the roof is the thing to pay attention to. A newer roof can withstand more hail damage, so a homeowner might be able to then stomach a larger deductible.
“We should all have tile roofs like in Arizona!” Helfrich said.
“Knowledge is power,” she said. “The more you know about it, the better off you’ll be.”
With interest rates on home loans still fairly low, this may be a good time to refinance your home and get into a new 15-year or 30-year fixed APR home loan.
According to Debbie Shephard, lending manager at Northern Colorado Credit Union, which serves Weld and Larimer Counties, there are important considerations in deciding to refinance:
Current rate vs. new rate
How much are you saving? 4.25% vs. 3.00%? Or 3.23% vs. 3.00%?
Does it make sense to refinance, especially with the closing costs?
Generally speaking, you should be able to recoup your closing costs within 24 to 36 months.
For example, with $8,000 in closing costs, you should be saving roughly $200 to $300 per month on your new payment.
Are you staying in your house or planning a move?
If you are planning to move or upgrade your home within a year or two, you may not want to pay those closing costs. Save your equity from those closing costs for the down payment on your new home!
If you’re thinking of refinancing to pull cash out for home improvements to get your home ready to sell, a home equity loan or line of credit is much less expensive than refinancing.
Is your credit in a good place to refinance?
If you have any negative items in your credit report, your current rate may be better than what a new rate would be.
You can check your rate on many sites and with many lenders without paying a fee, including Northern Colorado Credit Union’s website: nococu.org. You may be better off waiting until your score improves.
If high credit card balances are pulling your score down, a debt consolidation loan may be better for 3 to 6 months to allow your score to go back up and get you the best rate.