The best way to finance your New York City home renovation

You might be surprised to know that the median age of residential buildings in New York City is nearly 90 years old. No doubt, historic and prewar properties are part of the city’s charm. So, if you are considering buying a home in New York City, there’s a good chance it hasn’t been renovated in years—possibly decades. 

When homeowners start planning a renovation, they tend to dream about things like design and architecture before figuring out the real issue: How to pay for necessary infrastructure updates that most NYC properties require. 

The truth is, financing a renovation is the norm—most people just don't realize it. It's no different than financing your car or your home.

Traditionally, there are few ways to finance your NYC renovation. The two most popular existing financial products used to finance home renovations are cash-out refinance or a home equity loan. Other routes include a construction loan, and a more modern solution called a renovation loan. 

Construction Loan

Though borrowing power is strong with construction loans, they require mountains of paperwork and multiple inspections, and the bank withholds a large portion of your money throughout your renovation. Every time your general contractor needs money for your project, they have to make a request with your bank, wait for an inspection, and sign paperwork before funds are released.

Construction loans can also be expensive, as they often require homeowners to refinance into mortgages with above-market rates and significantly higher closing costs than a typical mortgage. Many of these loans will take homeowners from a fixed rate to an adjustable-rate mortgage, which means rates can rise even more over time. 

Home equity loan or cash-out refinance 

If you have a lot of equity and good credit, a home equity loan or cash-out refinance through a bank or credit union is an easier way to go. Both of these options offer higher borrowing power at the lowest rates. For larger renovation projects, most homeowners choose to take out a home equity loan.

While home equity loans work well for long-term homeowners who’ve been in their homes for years, they don’t serve recent homebuyers who haven’t built up equity yet. It can take up to a decade or more to build up equity to tackle a renovation wish list—especially if you’re living in NYC, where the average residential property is nearly a century old and likely needs major updates. 

Before you reduce the scope of your project or consider tackling your renovation wish list piecemeal year by year (while living in a never-ending construction zone), there is a modern option for renovators: The renovation loan.

Renovation Loan

One of the biggest advantages of a renovation loan is that it’s based on the value of your property once all the renovations are complete: For every $100,000 invested in home improvements, homeowners using RenoFi loans typically see a $75,000 increase in home value. This translates to a big boost in borrowing power (often by three times or more) and ensures homeowners receive the lowest rate possible.

Renovation loans are ideal for Bolster homeowners and New York City homebuyers alike, as a significant portion of inquiries Bolster receives are from proactive renovators who are searching for, but do not yet own, a home—and therefore have not built up the equity required for more traditional financing options. Renovation loans are also beneficial for homebuyers because they limit closing costs, combining the funds needed for a renovation with the mortgage.

Renovation loans are also an excellent choice for homeowners who want to use Bolster as their general contractor and already have plans, because the loan can help them add on design features or upgrade certain finishes (learn more about this type of renovation, Build Only, here). 

If you're seeking to increase your home value while building equity from the start, renovation loans are the way to go. Being able to access the increased value upfront, along with any existing equity in the property, is huge in order to cover the full cost of a renovation, or bridge the gap between your budget and your renovation wishlist. (Curious how much your renovation will cost? Get a customized estimate in seconds with Bolster’s major renovation calculator.)