How to finance a home addition: 3 Options to consider

by Ann Hayward 11/13/2022

Expanding your home to add value and square footage can be costly, so it’s important to know how to finance a home addition. Just like with buying a home, there are many loan options available to homeowners to fund their projects.

Here is a quick guide to the most common options for financing an addition to your home:

Home equity line of credit

A home equity line of credit allows you to utilize the equity you’ve already built in your home. Equity is equal to the value of your home minus the amount you still owe on your mortgage.

A home equity line of credit typically has a draw period in which you can tap into funds while only paying interest payments. After the draw period ends, you enter a repayment period and start paying back the principal amount.

Government sponsored loans

Title I loans offered by the Department of Housing and Urban Development are available to help fund renovation projects. Requirements for qualifying vary from one state to another, but are meant to fund improvements to basic utility and livability of your home.

Therefore, if your remodeling project is purely aesthetic, you may want to consider a different type of financing.

Personal home improvement loan

A personal loan isn’t tied to the value of your home, but dependent on your individual financial situation. Credit history and debt to income ratio are the main factors lenders will consider when approving you for a personal loan.

This type of home improvement loan offers flexibility for those who don’t want to use their house as collateral. They can also be a good option for homeowners who haven’t had time to build equity in their property yet.

These are only a few options for financing your home remodeling project. Some other possibilities include home equity loans, cash out refinance programs and low-interest rate credit cards for smaller projects. As long as you compare your options carefully, you’ll find the best way to fund your remodeling goals.

About the Author
Author

Ann Hayward

Born in Philadelphia and raised in the suburbs, Ann Hayward got her Pennsylvania real estate license at age 18 even before going to college. This second-generation real estate professional followed in the footsteps of her father and two uncles, inheriting their passion for the business. Licensed in DC, Maryland and Virginia, Ann is accomplished in her career, with numerous designations including SFR, SRES, PSA, WHC, and multiunit Housing Development Finance Professional (HDFP) from the National Development Council. She specializes in Prince Georges and Montgomery Counties, Northern Virginia and Washington, DC, all jurisdictions where Ann has lived and knows very well. In addition to her professional expertise, she owns and manages personal investment property, understands and has been involved in the renovation/remodeling process, and has great resources which she shares with clients. When you hire Ann to represent you, she will make your buying or selling experience an enjoyable, rewarding one. Her compassion, sensitivity to her clients’ needs, eye for detail, and ability to see the big picture when guiding you through a purchase or sale are unique assets that will ensure your success. A diverse and relevant background also gives Ann a distinct edge. For 30 years, she worked in fast-paced, high-pressure television and theatrical production, attaining the highest achievement – DGA membership as a Director, and as an award-winning staff and freelance writer. Her keen audio visual skills and design sense benefit sellers in marketing their properties, and are invaluable in helping buyers see the potential of space. A true renaissance woman, Ann was also an income tax professional and office manager for H&R Block, so she thoroughly understands the tax and financial implications of acquiring and selling real estate. Her superior organizational skills are further evidenced as owner of a downsizing/professional organizing business, Managed For You, which allows her to connect with everyone from millennials to boomers and seniors, whether for small space planning or assisting with major decluttering and transitioning. Ann holds an AB in American History from Simmons College, Boston, plus attended Robert Wagner Graduate School of Public Administration where she was a candidate for Doctorate. She additionally studied Film Direction at the American Film Institute in LA, and was a Stanford University post-graduate Professional Journalism Fellow. Personally, Ann is an avid if not very good golfer, and the co-founder of a nonprofit 501c3 organization offering educational guidance, tutoring and counseling for youngsters from elementary school through college admission. She sits on the board of trustees of a nonprofit educational film production corporation as well. (202) 494-6252 [email protected]