Q: I am considering refinancing my mortgage and I also want to make some upgrades to our home. Can I refinance and borrow money for upgrades under the same refinancing loan?

A: What you’re proposing is called a cash-out refinance and it’s tough to get one right now. They’re expensive, and lenders typically won’t do them unless you have tons of equity in your property. If your property is worth just about what you owe, you probably won’t qualify for a cash-out refinance, even if the loan will improve the value of your home.

Some loan products are harder to get in today’s financial markets than they were in the past. Frequently, I tell people that a certain type of loan product is hard to get and get follow up emails from loan brokers telling me that they have the ability to get these loan products for homeowners. So while it may be harder for you to find what had been an easy loan to obtain in the past, you may find a lender that is willing to give you the type of loan you are looking for.

You need to make sure you understand the costs involved. Some loan products now cost much more than they did before the 2008 financial crisis. The cost to refinance, for example, has also risen dramatically. Your credit score, the amount you want to borrow, and the type of property you own all may affect the pricing for the loan product you want.

In shopping around for your loan, make sure you talk to a good mortgage broker, local community bank, credit union and even a national lender to compare loan products and the costs involved.

One product that might be available to you is the FHA 203(k) program or a construction loan (if the work you want to do is major). The FHA 203(k) program was set up to assist people who were buying a property and wanted to make improvement to the home. If you, the home you’re in, and the improvements you’re intending to make to the home are within the parameters of the FHA loan program, you may be in luck.

Otherwise, if the work isn’t too major, you may want to look out for a zero percent financing offer or low interest rate offer from Home Depot or Lowe’s. You might be able to get up to a $30,000 line of credit on one of their credit cards for supplies, equipment or home improvement services you purchase from them.

Understand what it will cost you to take out that type of credit line and have a backup plan in place to pay down the amount you owe on that credit card once the free or low interest payment period ends. You won’t want to be stuck with a $30,000 credit card loan at a high interest rate without knowing having a plan in place to pay it off.

March 26, 2009