HELOCs and Contractors

Spring is an ideal time to start on home improvement projects, as the weather warms up and new waves of inspiration arrive. Before you begin, you should decide if you will finance your project through savings or if you intend to borrow money. You should also determine if you will need to hire a contractor, as some projects are more involved and take a more advanced set of skills than others.

One option available to finance home improvement projects is a home equity line of credit (HELOC), which allows you to borrow against your home equity during a period of time – say, ten years, and is known as a draw period. You can continue borrowing during this period as you repay the principal. Once this period ends, you will enter the repayment period, in which you can no longer borrow and must pay off the remaining principal and interest.

HELOCs are typically offered with variable interest rates, and you only have to pay interest on the money you use, not the entire amount you are able to access. They differ from home equity loans in that they offer a revolving line of credit, as opposed to a fixed amount of money for a fixed amount of time.

Hiring a contractor is often one of the next steps after securing a HELOC. This can be an expensive commitment, so it is best to review online ratings on trusted sites and to consult with friends, family, neighbors, and coworkers before you settle on a contractor. It is also important to receive estimates and to ask important questions related to permits, insurance, and subcontractors before agreeing to a contract. Once you have hired a contractor and the work has begun, you should keep records on important information, such as a copy of the contract, change orders, all correspondence, and all payments, as you will need receipts for tax purposes.

If you choose to go with a contractor that can both design and build, it is important to make sure you are on the same page in terms of your complete vision of the project. Not only should you ask them all the questions you would typically ask a contractor, but you should also ask about anything you would address with an architect or designer. When looking for a design-build contractor, Building Advisor recommends choosing one with tastes compatible to your own. This can be done by looking at their portfolio and visiting some of their projects.

As you shop around for a HELOC, take time to familiarize yourself with mortgage relief scams. Thankfully, safeguards have been put in place to help protect consumers, but you should still know the types of actions taken by predatory companies. The Federal Trade Commission (FTC) highlights common scams and the protection offered by The Mortgage Assistance Relief Services (MARS) Rule, also known as Regulation O. This rule offers protection by making it illegal for companies to collect fees until a homeowner receives and accepts an offer of relief. Below is a list of a few of the biggest mortgage relief warning signs.

  • When a business tells you not to contact your lender, lawyer, or housing counselor
  • You are asked not to transfer your property deed or title
  • They request you make your mortgage payments directly to them rather than your lender

The mortgage experts at Mlend are available to answer any question you may have about HELOCs, home equity loans, and any other loan-related needs, and to walk you through the steps of the loan process.

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