Building a deck or patio at your home can be a great way to both increase the value of your property and get more from your outdoor space at the same time. But what are your options to finance building a deck or patio, and which of these is the right one for you?
In this guide, we will be taking a look at six of the most commonly used patio and deck financing options, so that you can make the right choice on how to get the best results from your project.
We’ll help you understand why many homeowners find that a home equity loan limits their borrowing power, why a personal loan could mean that your monthly payments end up being considerably higher than they need to be and introduce you to RenoFi Loans, a new type of home renovation loan that lets you borrow against your home’s future value that we think you’ll want to know about.
The Pros & Cons of 6 Deck & Patio Financing Options
You’re probably considering a number of different deck financing options, and we’re the first to admit that things can quickly get confusing.
So to help provide some clarity around the different financing options available to you to pay for a new deck or patio, below we’ll dive deep into six different types of loans and the pros and cons of each to help make your decision a little easier and clearer and help you to understand which one is right for you.
A RenoFi Loan
RenoFi Loans are a new type of home renovation loan that lets you borrow against your home’s after renovation value rather than its current value, as a result significantly increasing your borrowing power when compared with other financing options and could be a great way to pay for your deck.
You see, while homeowners who bought their properties many years ago will likely have built up sufficient tappable equity to use to pay for home improvements, this is not the case for those who have bought recently. And not having equity means that a home equity loan or line of credit isn’t an option.
And when we consider that most deck and patio projects are part of larger renovation wishlists and more extensive backyard improvement projects, it’s easy to see why choosing the right financing option becomes so important.
Just take a look at the below and you can quickly see that building equity takes time:
A RenoFi Loan can increase your borrowing power by an average of 11x when compared with a traditional home equity loan, meaning that you won’t need to reduce the scope of your project and can focus your efforts on planning the perfect outdoor space.
RenoFi Loans are available as a RenoFi Home Equity Loan, RenoFi Home Equity Line of Credit, and RenoFi Cash-out Refinance, meaning that you’re able to choose the option that works best for your project and renovation wishlist.
If you have been considering a home equity loan or cash-out refinance but don’t have the equity that is needed to pay for your deck or larger backyard renovation project, a RenoFi Loan could be perfect for you, increasing your borrowing power by letting you borrow based on your home’s value after the project has been completed.
How do I know if a RenoFi Loan is right for my project?
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A Home Equity Loan or Line of Credit (HELOC)
Homeowners who have lived in their home for many years might find that a home equity loan or line of credit (HELOC) is an option for financing a deck and these remain a popular option for those in this position, but as mentioned above, those who have only recently purchased their properties will find that they haven’t built up enough equity for these to be suitable.
But even for those homeowners who are able to tap into their home’s equity, they might still find these options limit their borrowing power, given that they’ll typically only allow you to borrow up to 90% of your home’s current value.
A RenoFi Loan, for example, can let you borrow up to 90% of your home’s value after a renovation has been completed.
A Cash-Out Refinance
Some homeowners shouldn’t use a cash-out refinance to pay for any renovation project, and that includes building a deck.
This is for the simple reason that if you’ve locked in a low-interest rate already on a primary mortgage, you’ll be required to refinance at a higher rate, increasing monthly payments as a result.
Also, this financing option limits your borrowing power to 80% of your home’s current value. For many, this will mean that they are unable to borrow all of the money that they need and are unnecessarily forced to reduce the scope of their project.
Unless you’re going to reduce your interest rate, better financing options than a traditional cash-out refinance exist that can help you to pay for your new deck.
A Construction Loan
While construction loans are still frequently recommended as a way to finance home improvement projects, including building a deck, these aren’t going to be your best option. These loans are often considered to be an option because, like RenoFi Loans, they let you borrow based on your home’s after renovation value.
But we strongly believe that you shouldn’t use a construction loan for your renovation project and encourage you to take the time to understand the alternatives. They’re intended to be used for ground-up construction projects, not renovations.
Construction loans force you to refinance your existing mortgage, usually onto a higher rate, will result in higher closing costs based on the full loan amount and impose a complicated draw and inspection process. In fact, for this reason, many contractors hate construction loans and some will refuse to work with them entirely.
If the only reason you’ve been considering a construction loan is to tap into your home’s future value and increase your borrowing power, take a look at a RenoFi Loan.
An FHA 203k or Fannie Mae HomeStyle Loan
If you have a lower credit score, you might want to consider an FHA 203k or Fannie Mae HomeStyle Loan to finance adding a deck or your backyard renovation.
These government-backed renovation mortgages let you combine the cost of buying (or refinancing) a property and the cost of renovations, and both allow you to borrow based on the home’s future value.
But these loans both require existing homeowners to refinance their existing mortgage, come with higher than average interest rates and are known for their complex process that commonly causes delays.
That said, both FHA 203k Loans and Fannie Mae HomeStyle Loans have a lower credit score requirement than a RenoFi Loan, meaning that for some homeowners they’re going to be the only options that allow them to borrow based on the after renovation value.
If you’re not going to be able to qualify for a RenoFi Loan because your credit score is too low, consider these options and take a look at our FHA 203k Loans vs Fannie Mae HomeStyle Loans guide.
A Personal Loan / Home Improvement Loan
Homeowners who haven’t got sufficient equity to be able to use a home equity loan or line of credit often turn to personal loans or credit cards as a way to finance a new deck, often without realizing that other options are available.
These are commonly advertised under the guise of ‘home improvement loans’ or ‘backyard improvement loans,’ with many failing to realize that what’s being offered to them isn’t a bespoke loan product at all, rather an unsecured personal loan being marketed as a way to finance home improvements.
Being unsecured, personal loans introduce an increased level of risk for lenders, meaning that they come with strict lending criteria based on your income, credit score and other factors including other loan and credit card debts and your debt-to-income ratio.
Personal loans and other unsecured home improvement loans will typically reduce your borrowing power and increase your monthly payment compared to the alternatives due to higher interest rates and shorter repayment periods. It’s not uncommon for the interest rate on a personal loan to be between 8% and 15%, a figure that’s almost double what can be found with other types of financing.
Many personal loans and unsecured home improvement loans also come with origination fees, further increasing the total cost of borrowing.
That said, personal loans are often the best choice for homeowners looking to borrow a lower amount of money for a smaller deck installation or where the deck isn’t part of a larger backyard renovation project, remembering that RenoFi Loans let you borrow upwards of $20k to $500k.
What’s The Best Way To Finance A Deck or Patio?
There are many different patio and deck financing options available to you, and the right choice comes down to your personal preferences and situation. However, an increasing number of homeowners are finding that RenoFi Loans provide them with the best balance, helping them to combine the benefits of a construction loan and a home equity loan, especially when a lack of tappable equity limits borrowing power and the higher interest rate on personal loans and credit cards means the most expensive monthly payments.
But whatever option you choose to finance your new deck, it’s important that you consider the following when making your decision:
- How much is your deck or patio going to cost?
- Are you looking to build a deck as part of a bigger backyard renovation?
- How much money do you need to borrow without reducing the scope of the project?
- How much equity do you have in your home?
- What’s your credit score and credit history?
- Do you have any other debt on other loans and credit cards?
- What is the maximum monthly payment you can afford?
- How long do you want to repay the loan?
Why not reach out to our team today to find out more about RenoFi Loans, see whether it’s the right choice for you and get the ball rolling on your new decking or patio project.