Floors, walls and ceilings aren’t the only things that make a home; even though many deny it, furniture is an essential part here. Moving in, however, you probably won’t be flush with cash and, unless you don’t mind sleeping on rolled-up newspapers until you save enough, you’ll want to get a renovation loan.
You might not have heard about it, but a renovation loan can be of tremendous help to you – it is like giving your home a face lift. You can use the money granted by your renovation loan for everything, from hiring interior designers and decorating your walls and floors, to making necessary repairs with plumbing, etc.
The standard renovation loan caps at $35,000 and the interest per annum is between a ballpark of 3% and 6%. The typical loan tenure is one to five years.

It won’t necessarily improve rental yield

If your aim is being a landlord, you should consider the fact that the majority of tenants doesn’t really care too much about aesthetic renovations. All they do care about is location and maintenance – it is not as if they’re planning on staying there for too long. Essentially, tenants will pay less if a place is run down, but they won’t pay more for fancy stuff, such as marble countertops, fancy walk-ins, etc. – they are probably not looking for luxury.
Of course, this isn’t necessarily a rule – high end rental units do exist and if you happen to have a piece of large property in your area’s hotspot, going with a renovation loan might actually put you in business!

No reason to go berserk

Seeing as how the standard renovation loan maxes at $35,000, you should make the most out of it and go with the cap, right? Well, although this might be tempting, especially owing to the fact that interior designers often tend to assume a budget of a $30,000 or more, you should ask what they can do with less. Tighten their budget a bit before agreeing on the sum. You can even try going as low as $15,000, it might work and if not, it’s a good haggle point.
Of course, you might still decide to go with the full $35,000 and you won’t find any judgement here; however, your typical lenders might not be this open-minded. If you don’t have a good enough credit score for a home loan, professionals at Clean Credit might be able to help and they’ll throw in an obligation-free assessment to the mix!

What about a furnishing loan?

What, the $35,000 reno loan cap won’t do it for you? Well, you still won’t find any judgement here. A furnishing loan will get you an additional loan of up to $28,000, at 6% to 7% of annual interest, on top of the $35,000 from the renovation loan.
The furnishing loan is still better than using your credit card (the interest here revolves around 24% per annum), so if you are absolutely certain that you need this amount of money, go with it!

Consider potential cash flow issues

Although a reno loan is an excellent way to finance your home renovations, the general rule of thumb is to hesitate using a loan whenever possible. Obviously, this is mostly due to the fact that you’ll end up losing money in the end, but also because there are scenarios which may render you unable to pay it off in the end.
You need to ask yourself certain questions with regards to your finances. Is your income stable enough? Is there a risk involving decreased cash flow in your life? Will you be able to timely pay the reno loan off, before the interest eats you alive?
In the end, getting a renovation loan is a form of luxury; if you aren’t certain about your financial stability, you’re better off buying a bed, a table and some chairs and waiting until your situation improves.

 

Published by Emma Lawson