By Frank Giuseppini
Now that you have decided that you want and need to do a replacement window project, the next step is to figure out how you will pay for it.
The replacement window project financing question is something that you can answer only after considering all the available ways to pay for your project against your personal financial situation. I’m writing this article to give you some background as to the nature of replacement window financing based on how the process has worked for the thousands of replacement window projects that we at Jantek have completed over the last 25 years.
First of all let me clear up something that is a pet peeve of mine. Although some window company’s say they “offer financing” this is misleading. To the best of my knowledge, there is not a single company in the window and patio door business that offers in house financing. Any financing you receive will be through a bank or a broker, or some other company that the window and patio door company works with. That said, let’s move on to the substance of how this works.
Over the years our customers here at Jantek Windows and Patio Doors have paid for their window and patio door replacement projects in many ways. Here are the most popular.
- Credit Card
- Unsecured loan
- Home Equity Line of Credit
- Refinancing with cash out
If you are going to pay for your replacement window and patio door project with cash or credit card or a combination of the two, then I think we all are pretty familiar with how that would work. So lets dive into the other three popular options, Home Equity Lines of Credit, Refinancing With Cash Out, and Unsecured Loans.
Home Equity Line / Re-Fi cash out
In 2020 we came into a very strange economy as a one of the impacts of the CORONA Virus. Mortgage Interest rates have dropped to historic lows and existing home prices have soared into a sellers market. The low interest rates have also shifted the rent vs. own expense comparison in favor of ownership by created a shortage in the inventory of homes for sale. Sellers are seeing multiple offers on their homes and out-right “bidding wars.” So how does this matter to you if you are not selling your home?
Well, based on the above, as the sale prices of homes in your area climb, so does your market value equity in your home. That means that if you have been in you home for 5 or 10 years, an appraisal of your home’s value may support an application for a Home Equity Line of Credit for an amount of money equal to around 80% of the appraised value of your home minus the remaining principal balance on your mortgage.
Applying for a “Re-Fi” of your existing mortgage with increased principal (cash out) paid out to you may be an option. Just as with an Home Equity Line of Credit, the amount you can receive in “cash out” is going to be based on the appraisal of your homes current market value. With todays historically low mortgage rates and rapidly and high current market values, a re-fi cash out loan may offer you the opportunity to both get the money to finance your replacement window and patio door project and also lower your monthly payment.
There are a few of things that you should be aware of when considering either a Home Equity Line or a Re-Fi Cash Out loan.
First, these types of loans take time to fund and could cost a few hundred dollars in fees. The process for applying, approval and receiving the funds (or the credit line) will be pretty much the same as applying for any mortgage. Since these loans are secured by the home itself, there must be a title search and insurance, loan underwriting, an appraisal, recording of a mortgage (even with an Equity Line of Credit) etc., which all take time and cost money.
Second, even though I said above that home prices are climbing and creating increased current market value equity for homeowners in many areas, this does NOT mean that YOUR home has increase in value, or, even if it has, that the appraisal will support enough increased equity over the principle value of your current mortgage to finance your replacement window project. We have had potential clients sign contracts and give us a deposit and find out afterwards that the appraisal did not support their loan amount. This wastes everyone’s time. At Jantek we now require customer’s to have their financing secured prior to entering into a contract for replacement windows and patio doors.
Third, the interest on a Re-Fi Cash loan and Home Equity Line of Credit are tax deductible up to the maximum total that the IRS and your state of residence allows.
Fourth, both the ReFi-Cash Out and Home Equity Line of Credit are recorded as mortgage liens against your home. therefore both types of loans would be required to be paid in full to transfer clear title in the case of a sale of your home during the payback period.
Finally, as I said above, for those replacement window and patio door customers that are seeking secured financing with a Re-Fi or Home Equity Line, the appraisal is the key… if you have not been in your home long enough, or if for any reason your home has not appreciated in market value much above your current mortgage balance, then you will not qualify for this type of loan because the equity will just not be there.
An unsecured loan is just that! It is not secured by a mortgage lien against your home or any other of your assets as is a ReFi-Cash Out or a Home Equity Line of Credit.
With an unsecured loan, there is no need to do an appraisal of your home since approval is not based on your home equity. But your ability to be able to pay the loan payments in full and on time is going to be scrutinzed by the lender. This means that your credit history, salary, bank accounts and mortgage payment performance (unless you paid off your mortgage) are going to be vetted once you apply. Also, an unsecured loan requires the lender to take much more risk in lending money. Therefore, the lender is going to charge a higher rate than if you were applying for a secured loan. At the time I am writing this, the mortgage loan rates are around 2.5–4.8%, whereas most unsecured loans rates are in the range of 5.5-13%.
A few things about unsecured loans.
First, depending on who you choose to go with for an unsecured loan, some lenders have lower loan limits than others. You need to apply to a lender that will lend you the amount you will need to pay for your window replacement project. Also, depending on your credit, you may not qualify for 100% of the amount of your replacement window and patio door project and my have to find additional funds in cash or credit card etc.
Second, you can shop for an unsecured loan but its always best to have some “in” with a lender:
- Credit Unions sometimes offer unsecured loans to their members.
- The bank that you do your checking and/savings accounts with may offer unsecured loans.
- At Jantek we refer our customers to HFS Financial, a national company that works with lenders in all 50 states to offer 100% financing for our customers at rates starting at 5.49% (so this would be an “in”).
If you don’t already have one, we would be happy to provide you with a quick no hassle no touch TeleEstimate/Virtual Estimate for your replacement window and patio door project.
I hope this article gives you some insights into your options for financing your replacement window and patio door project.
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