Housing / Paying for renovations for old gifted home
Jan 16, 2023
Paying for renovations for old gifted home
Hi, my husband and I were gifted an an old home from my grandfather. Zillow says it is worth around $486,000 in this market. The home is in unlivable conditions, and it will cost around $150,000 to totally renovate it. What are the best and cheaper options for us to renovate? We don't want to use cash or have to sell retirement investments to fund this. I don't know much about this nor have we ever owned a home. Thanks for any help you can offer. EDIT: There is no mortgage on the home.
Jan 16, 2023
@PrestonH9S, Here are the options as I see them, although disclaimer I haven't been in your situation but did help out family in a similar one: 1. home equity loan: view it like a first mortgage on the house with a fixed rate, fixed loan amount with a fixed time period (15 or 30 year loan) 2. home equity line of credit (HELOC): like a credit card, you have access up to a certain amount of credit that you can tap into (usually for 10 years or so) while paying interest on the amount borrowed, but then that period is followed by a repayment period where you pay off the balance Explore both of these; usually the home equity loan will have a lower interest rate from my experience. Go to a few banks and don't stick with just the first one you get a quote from. I've also seen from smaller banks that if a home is paid off they won't usually offer a home equity loan.
Jan 18, 2023
@PrestonH9S, Jay hits on the main ones that will probably offer you the most competitive rates versus other options. But, sharing a few more ideas here: - Government grants: Some government programs may offer grants to homeowners for home renovation projects, particularly if the renovations improve energy efficiency or are related to accessibility for people with disabilities. - Personal loan: Some homeowners may be able to qualify for a personal loan, which can be used for home renovations or any other purpose. And for the below, it's important to keep in mind that taking money from your retirement account(s) to buy a home could have long-term consequences on your retirement savings, but here are a few of the options too: - 401(k) loans: Some homeowners may be able to borrow against their 401(k) to fund home renovations, but it's important to consider the tax implications and the potential impact on retirement savings before taking this step.
Jan 18, 2023
- Traditional IRA: Withdrawals from a Traditional IRA before age 59 1/2 are generally subject to income tax and a 10% additional tax penalty. However, there is an exception known as the "first-time homebuyer exception" which allows a person to withdraw up to $10k penalty-free to purchase or build a first home for themselves, their spouse, their children, their grandchildren, or their parents. - Roth IRA: Unlike Traditional IRA, contributions to a Roth IRA are made with after-tax dollars, so withdrawals of contributions (not earnings) are not subject to income tax or penalty. This means that a person can withdraw their Roth IRA contributions penalty-free at any time, but not the earnings, for any reason, including buying a first home. But, the withdrawn amount will be considered as part of their income for the year and may affect their tax bracket.