Are you planning to add a garage to your home or expand your existing space? It is a costly project that can be complex, but you can make the process seamless by creating a budget for the renovation, choosing the right funding option, and developing a realistic plan of action to move forward.
How Much It Costs To Renovate or Build a Garage
On average, you can expect to spend between $5,651 and $23,314 to renovate your garage, notes HomeAdvisor. It depends on the scope of the project and the costs associated with labor, supplies, and building permits.
To build a garage, you’ll likely spend around $50 per square foot, HomeAdvisor adds, bringing the total costs to anywhere between $16,753 and $38,924.
Should You Get a Loan for Your Garage Project?
Unless you have several thousand dollars lying around, you may be considering a loan for your garage project. Here are a few reasons why financing the costs could be a sensible option:
- Potentially increase your home’s value: An investment in an upgraded or new garage could boost the equity you have in your home, consequently increasing your borrowing power. The increase in your home value could also mean a higher profit if you decide to sell your home.
- Make your space work for you: Have you considered relocating to a home with more space? Instead, convert your existing garage to create added living space or build a new one.
- Avoid tapping into your emergency fund: A loan allows you to fund your garage project without having to place a dent in or empty out your savings account.
- Get affordable monthly payments: With the right form of financing, you can enjoy low monthly payments that work for your budget. Plus, you could get an extended loan term to pay the balance in full.
- Complete the project on time without cutting corners: There is no need to swap out high-quality materials for inferior ones or delay your garage project if you run out of funds. A loan can cover the costs upfront so you can focus on ensuring the project is completed correctly.
Garage Loan Options
If you’re ready to renovate or build a garage, explore these loan options.
Home Equity Loan
A home equity loan allows you to borrow 80 to 90 percent of your home’s current value minus your outstanding mortgage balance. The interest rates are often lower than what you’ll find if you refinance your home. Plus, the interest you pay on the home loan could be deductible if the loan proceeds are used for improvement purposes. However, this option may not be viable if you haven’t built up enough equity in your home.
Home Equity Line of Credit (HELOC)
Like a home equity loan, a HELOC is a second mortgage that allows you to tap into your equity to get the funding you need. The funds are accessible through a line, though, and you’re free to withdraw what you need during the draw period of up to 10 years. You will also make interest-only payments on the amount you borrow. Once the draw period ends, you will make principal and interest payments that could fluctuate as interest rates are usually variable.
A HELOC may seem appealing to the average homeowner. But it’s still not feasible if you’re a new homeowner with minimal equity or your home value hasn’t quite appreciated the way you thought it would due to market conditions.
Personal Loan
Home improvement or personal loans are unsecured, making them attractive to homeowners. However, the interest rates are sometimes on the high end, and the repayment periods are brief. So, you’ll likely be stuck with steep monthly loan payments that could stretch your budget too thin. Also, be mindful that the lending process may be simple, but there’s a chance you may not qualify for the total amount you need.
Credit Card
Unless you qualify for a credit card with a promotional interest rate, this option is not ideal to fund your garage project. In fact, it could cost you several hundred or thousands more interest. And suppose you’re unable to pay your credit card balance off before the zero-interest period ends. In that case, the garage conversion or build could cost you a mini fortune.
Construction Loan
Construction loans are designed to fund new homes, but they are sometimes used for garage conversions or new builds. And for a good reason – the amount you may be eligible for is based on your home’s after-renovation value.
The downside is these products come with a complex draw and inspection process, and you’ll have to refinance your existing loan. Also, closing costs could be steep as the new loan amount is based on what you owe and renovation costs.
Cash-Out Refinance
Some homeowners use a cash-out refinance to renovate or build their garage. You can borrow up to 80 percent of your home’s value (minus the mortgage balance) through a cash-out refinance. The loan amount is then rolled into your existing balance to create the new mortgage. Plus, you will be responsible for closing costs to secure the new loan.
A higher loan balance means a steeper monthly payment. And if the new interest rate is higher, it wouldn’t make sense to use a cash-out refinance to fund our garage project.
203(K) Loan
FHA 203(k) loans are backed by the federal government and let you borrow up to $35,000 for eligible home improvements. (confirm garage repairs are on the list) The amount you’re eligible for is based on your home’s future value after renovations and is ideal if you have less-than-perfect credit.
The lending process is complex, though, so you could experience construction delays.
