Is Your Home Ready for Winter?

Nick Ludwig, Consumer Loan Specialist

October 01, 2013

Managing Your Money

Articles

As we approach cold weather season in the Midwest, you may be getting your skis out of storage or planning to curl up with a book and a blanket next to the fireplace.Whether you are a winter enthusiast or a hibernator, there are important considerations to make when it comes to your home.

The Farmers' Almanac is predicting a quick transition to winter this year with piercing cold temperatures in the upper Midwest. If you buy into this prediction, you may want to consider some home improvement projects that could lower your heating and utility bills. Ways to make your house more energy efficient include: adding insulation to exterior walls or attic, upgrading windows and doors to cut drafts, or installing a high efficiency furnace or heat pump.

Nebraska residents may find some of these projects eligible for an interest rate subsidy through the Nebraska Energy Office (NEO) if the project is intended to make your home more energy efficient. Union Bank is a preferred lender for the NEO Dollar and Energy Saving Loan Program.  Additional information is available at: http://www.neo.ne.gov/loan/index.html.

If you aren’t the do-it-yourself type, working with a reputable contractor can save you time as well as headaches. Anyone who wants to charge for an estimate should likely be avoided. Keep in mind that many contractors will ask for a deposit for as much of half of the project cost upfront to obtain materials for the job. Make sure contractors are licensed and bonded, especially if you are allowing them access to your home! Referrals from friends, family or trusted business partners can be the most reliable sources of reputable leads.

Keep a Roof Over Your Head

Will your roof make it through the winter? Heavy snow fall can stay on your roof for an extended period of time if the temperature stays below the freezing point.  It’s important to make sure your roof is free of leaks and your shingles have plenty of life.  Many contractors work well into the fall and early winter (weather permitting) and offer free estimates.  Some shingles now even carry lifetime warranties.

Other popular home improvement projects include kitchen/bathroom remodeling, basement finishing, building a deck, or even adding a pool. Keep in mind that the equity in your home can also be used to: consolidate credit card debt, pay student loans, take a dream vacation, etc. Your imagination is the limit!

How much can I borrow?

One of the most common questions I get about home improvements is, “How much am I eligible to borrow?” The answer varies by each individual’s financial situation, but a big factor is equity. Your loan-to-value (LTV) ratio is reviewed as part of your application. You can calculate your LTV by taking the balance of your mortgage (if applicable) and dividing by the value of your home (see example below). The value of your home can be determined by performing an appraisal or using the taxable value assigned by your county assessor. Banks normally reserve the best interest rates for a LTV ratio of 80% or less, but terms may be available for up to 100% of the LTV with approved credit.

Mortgage Balance

Home Value

LTV

$120,000.00

$200,000.00

60.00%

Home Value

LTV

80% of Value

$200,000.00

80.00%

$160,000.00

Home Value

80% LTV

Eligible Amount

$200,000.00

$160,000.00

$40,000.00


Home Equity vs. HELOC

The two most popular loan types for home improvement are the fixed home equity loan and the home equity line of credit. The fixed home equity loan is a one-time lump sum and is paid back in equal installments. Home improvement projects that favor the fixed home equity loan include roofing and siding, windows and doors, and heating and air. These are typically done with the same contractor and an accurate estimate can be obtained before billing. 

The home equity line of credit can be charged up and down (similar to a credit card) and carries a minimum monthly payment of 1% of the principal plus accrued interest. This is typically used for remodeling projects where multiple contractors may be used or the project will be completed in stages. See the helpful chart at https://www.ubt.com/homeequity for more clarification.

Where to start?

Speaking with a loan specialist is the best path to finding the solution that fits your situation. For instance, it may make sense to refinance your conventional mortgage to take advantage of lower rates with cash out for your improvement project. It’s important to keep in mind that a home improvement project doesn’t necessarily translate to a home equity loan. Although the interest paid on a home equity loan may be tax deductible (be sure to consult your tax advisor for clarification), there may be enough equity in a vehicle or other assets to cover the cost of improvements if you just purchased your home. Let a Union Bank loan specialist evaluate your options today!

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This blog article is for informational purposes only, and is not an advertisement for a product or service. The accuracy and completeness is not guaranteed and does not constitute legal or tax advice. Please consult with your own tax, legal, and financial advisors.