Whether you have a growing family, are preparing for an elderly parent to move in with you or are expanding an existing room to accommodate your favorite hobby, there are several reasons why you might be considering adding square footage to your home. No matter your reason, deciding to take on a home improvement project of this scale comes with certain questions that need to be answered — such as “who will do the work?”, “What will the budget be?” and “How will I pay for this project?”.
Because home additions are one of the most significant types of renovation, they’re also one of the most expensive, meaning that the matter of affording the project is a top priority — especially if your savings aren’t where you’d like them to be. So how can you pay for your addition? The good news is that financing options are available.
Keep reading to discover everything you need to know about financing a home addition, including the types of projects that are most frequently financed, what to be aware of before you get to work and different ways to afford the bill.
Home Addition Types That Need Financing
In the U.S., additions cost homeowners an average of $46,000, with some projects totalling as little as $21,000 and others as much as $73,500 (or more, depending on the selected materials, fixtures, finishes, etc.).Citation Even on the lower end of the scale, the cost is considerable, meaning that most people will need to seek some sort of financial assistance to foot the bill.
Some of the additions that tend to fit into this price range include:
- Traditional or full additions — These involve adding new rooms or spaces to your home to increase its living area.
- Micro additions — The least disruptive option on this list, these additions typically focus on expanding the size of a single room that’s already a part of your home’s floor plan.
- Story additions — As this type of addition adds an extra story (typically a second story) to the top of your house, these are one of the most involved additions you can choose.
- New structures — These include pool houses, greenhouses, detached garages or any independent structure added to your property.
- Garage conversions — While not technically an addition, converting existing garage space (whether fully or partially) into living space increases your home’s liveable area.
What to Know Before Starting a Home Addition
If you’re considering an addition for your home, it’s likely that you’re anxious to get started. But before you call the contractor, there are four important tasks you’ll need to cross off your to-do list. Prior to breaking ground, you should:
- Determine how much your addition will cost. Once you know how much the project will cost in total, you’ll be able to estimate the amount you’ll need to borrow from your lender. Additionally, you can use this figure to get a general idea of how high your monthly loan payments could be.
- Check your credit score. The higher your credit score, the better your chances are of getting favorable loan terms and interest rates. Checking your score ahead of time can give you an opportunity — if needed — to improve it before applying for a home addition loan.
- Secure financing. Once you’ve started work on your home addition, it may become difficult to find financing. Your options for securing a loan mid-project may be fewer, less desirable or non-existent as many lenders are unwilling to take on the extra risk.
- Get any/all necessary building permits. When taking on a project that increases the value or alters the footprint of your home, you’ll most likely need to get a building permit from your local municipal offices. Failing to do so may result in stalled progress or canceled work and difficulties selling your house in the future.Citation
Financing a Home Addition: 6 Ways to Afford Your Project
When it comes to finding the financing you need to get started, you have options. To help you narrow down your choices and get the ball rolling on your addition more quickly, we rounded up seven different ways of funding your project.
As you go through the following list, consider your situation carefully. You may find that there are only one or two options that make sense for you, and that’s ok. Putting an addition on your home is a major financial decision, so it’s crucial to find the home addition loan type that works best with your circumstances.