Remodeling best ways to pay for it now.(financing home-remodeling projects)

If you're planning to borrow against the value of your home to finance a major remodeling project anytime soon, you might be in for a shock. Even if you have a stellar credit record, you could face far more scrutiny than you would have in years past, especially if you live where home prices are falling.

The reasons? Declining home values and troubles in the nation's subprime mortgage market. In the past year, as adjustable mortgage rates have risen, more overstretched borrowers have seen their homes forced into foreclosure. Some lenders have responded by tightening their standards for all borrowers, from the least creditworthy to the most.

A couple of years ago, it wasn't all that unusual to borrow, say, 90 percent of your home equity for a large renovation, notes Charles DiPino, president of the Maryland Association of Mortgage Brokers, who has been in the mortgage business for 15 years. "When values were rising at 15 to 20 percent a year, it was no problem," he says. "Now that we're in a flat or declining real-estate market, lenders won't assume the same risk."

With home prices dropping, a lender might also be more strict when evaluating your home's market value, says Michael Knight, CEO of Vanguard Mortgage and Title in Littleton, Colo., which owns mortgage companies in 18 states. Before granting you a loan, some lenders will now ask for a second appraisal. "We're seeing an extremely tight environment in appraisals," Knight says. "They're questioning the value of the home and also the credit score of the borrower."

Weakening home prices might also make you want to reconsider the scope of your remodeling. Because many projects fail to recoup their costs even in a rising market, it makes little sense to remodel in hopes of boosting a home's value. The best reason is to make the home more livable and enjoyable for your family.

That said, bankers and brokers insist there's still plenty of competition for creditworthy borrowers, especially if you've built up a significant amount of equity in your home. And the rates on loans, while rising, remain historically low.

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