How Do I Increase a Mortgage to Fix Up a House?

Tap into your home's equity to make home improvements.

Tap into your home's equity to make home improvements.

Use the equity in your home to get the money you need to make home repairs or improvements that can increase its value. Taking out a new loan may also save you money by getting you a lower interest rate. Before you can qualify for a home equity or cash-out refinance loan, you need an untarnished credit report and 10 percent or more equity that you can tap.

Improve Credit Profile

Along with the equity in your home, you'll need good credit to qualify for a second mortgage to fix up your house. A high credit score can get you more loan money and a lower interest rate. According to personal finance columnist Liz Weston, a credit score of 760 or above will qualify you for the best loan rates and terms. If your credit score is above 700, you can still add on extra points to improve it, but raising your score quickly isn't as easy. Whatever you do, don't do anything to blow a good credit score. It takes just one missed payment to drop a decent score by 100 points or more.

Build Home Equity

You can qualify for better financing and build immediate equity in your home by making a large down payment. Later, you can borrow against the equity and deduct the interest you pay on the loan on your federal income tax return. A fixed-rate home equity loan may be the way to go when you need fix-up cash. You get a lump sum of money that you repay over the term of the loan along with a monthly payment and interest rate that don't change. While the interest rate you pay on a home equity loan usually will be higher than the interest you pay on your original mortgage, it’s still lower than if you used credit cards or applied for a personal loan to pay for home-renovation projects.

Increase Home Value

The loan-to-value (LTV) ratio is the percent of the home’s purchase price you are borrowing. Staying at or below 80 percent LTV will usually get you a lower interest rate. Generally, lenders require that you make a 20 percent down payment when you buy a home. In some cases, you can get financing even if you borrow more than 80 percent of the home’s fair market value but it will cost you more. The good news is that the value of your home increases over time as you pay down the principal and build equity. As soon as you have enough equity, you can apply for a home equity loan, home equity line of credit or home refinance loan to get the cash you need to renovate or upgrade.

Refinance Your Mortgage

Refinancing your current mortgage loan can get you the money you need to make home improvements. Cash-out refinancing works by letting you refinance for more money than what you owe on your existing mortgage. When a lender finances the loan, you get the difference in a cash payment that you can use to fix up your home. Although paying a lower interest rate will save you money over the lifetime of the loan, the down side is that refinancing comes with fees and prepayment penalties attached. Before making a decision, think about how long you plan to live in the house. Add up the closing costs which can differ from one lender to the next. Calculate how much a lower interest rate will save you and then ask yourself if the benefits of refinancing your mortgage loan will outweigh the costs.


About the Author

Amber Keefer has more than 25 years of experience working in the fields of human services and health care administration. Writing professionally since 1997, she has written articles covering business and finance, health, fitness, parenting and senior living issues for both print and online publications. Keefer holds a B.A. from Bloomsburg University of Pennsylvania and an M.B.A. in health care management from Baker College.

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