Should You Refinance Before or After Renovation?

Written by Banks Editorial Team
2 min. read
Written by Banks Editorial Team
2 min. read

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You want to renovate your home in the near future to make it more suitable. But you’re also considering refinancing and aren’t sure if you should hold off on making improvements until the new loan closes. 

Ultimately, deciding if you should refinance before or after completing home renovations depends on what you’re trying to accomplish. If you’re seeking a lower interest rate, a more affordable monthly payment or both, you can hold off until the home improvement projects or repairs are complete. But if you’re planning to convert your home equity to cash and use the funds to make improvements, you’ll need to refinance before the renovation. 

Home Loans and Mortgage Refinancing

Reasons to Refinance Before a Renovation

Here’s a closer look at why it’s a good idea to refinance before upgrading your property. 

Access Cash to Fund the Renovation

A cash-out refinance lets you pull equity out of your home that can be used to cover renovation costs or however else you see fit. It also replaces your current mortgage with a new one with different terms. To illustrate, assume the lender allows you to borrow up to 80% of your home’s current value. If it’s currently worth $500,000 and you owe $325,000 on your mortgage, you could cash out up to $75,000 ($500,000 * .80 – $325,000).

When you close on the loan, the new lender will pay off your current mortgage of $325,000. You’ll also receive the cash you pulled out, which will be added to your current mortgage balance, bringing the new mortgage (or new loan amount) to $400,000 ($325,000 + $75,000). 

Expand the Renovation Project

Major renovations are often costly, and there’s a chance you may not have several thousands of dollars lying around to get them all done. Consequently, cutting corners or scaling back the project scope may seem like the most feasible solution. Or you can take out a cash-out refi to cover the costs or add even more items to the list of upgrades to avoid high-interest rates that often come with other forms of debt, like credit cards and personal loans. 

Home Loans and Mortgage Refinancing

Lower Monthly Payments

If you’re simply looking to secure more favorable loan terms or remove private mortgage insurance, a rate and term refinance could be a smart financial move before renovating your home. You could get a more affordable mortgage payment for two reasons: you qualify for a lower interest rate, and the term resets on the new loan. Keep in mind that an extended loan term means the lender has more time to collect interest from you. 

Still, if you’re not in a rush to renovate, the money saved by reducing your mortgage payment could be used towards home improvements. 

Reasons to Refinance After a Renovation

Sometimes, it’s more sensible to make improvements before seeking a refinance

Increase Home’s Value and Equity

Renovations will likely increase the value of your home and the amount of equity at your disposal. Consequently, it will appraise at a higher value when you apply for a cash-out refinance, which means you could be eligible to pull out more cash.

Take Out More Cash

To piggyback off the last point, if your property value is $275,000, you owe $150,000, you’ll receive $83,750 ($275,000 * .85 – $150,000) if the lender lets you pull out 85% of your home value. But assume you invest $25,000 of your own cash to make improvements. If your property appraises for $375,000 after renovations, the amount of cash you can take out will increase to $168,750 ($375,000 * .85 – $150,000). 

Get More Value Out of Your Refinance

Whether you decide to refinance before or after renovations, you want a lender in your corner to help you navigate the process. When you’re ready to move forward, consider loanDepot, as it offers several home refinance options to meet the needs of its borrowers. 

Since 2010, loanDepot has refinanced over $179 billion in mortgages, and its team of licensed loan officers is standing by waiting to serve you. Here’s how the mortgage refinancing process works: 

  • Step 1: Speak with a licensed mortgage officer from the loanDepot team. 
  • Step 2: Finalize your refinancing goal. 
  • Step 3: Select a home loan product that best suits your needs. 
  • Step 4: Complete a formal loan application. 
  • Step 5: Work with your loan officer to ensure the underwriter has all the documents needed to make a lending decision. 
  • Step 6: If approved, schedule your loan closing on a day and time that works best for your busy schedule.

Simple as that. Learn more about mortgage refinance options that may be available to you by submitting an online inquiry today.

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