However, home renovations can be expensive, which means you may not always have the funds readily available. Fortunately, there are some viable options for financing your home improvements that are practical and affordable.
Here are some options for paying for your residential renovations.
Taking out a personal loan is a suitable option for renovations that aren’t exactly small, but won’t require major construction. For instance, if you’re replacing the windows or want to remodel your bathroom, you may want to apply for a personal loan to help cover the cost of the project.
There are several perks to acquiring this type of loan. Personal loans are fairly easy to find and you can get one through your bank or credit union. Before you apply, make sure you compare interest rates, fees, and repayment terms so you’ll know which loan works best for your budget.
Keep in mind that personal loans are unsecured, so you won’t have to use your home as collateral. Your interest rate is usually based on your credit score, and you can receive the funds quickly once you agree to the terms and are approved.
However, if your credit is fair or poor, you may face application fees, penalties for late payments, and high-interest rates.
Home Equity Line of Credit (HELOC)
HELOCs are another sensible way to finance your home improvement project(s). A home equity line of credit is a secured loan, meaning that your house is used as collateral. However, you can qualify for a fairly low-interest rate with this type of loan.
HELOCs are also a line of revolving credit, which means you can take the money you need for a renovation when you need it. This form of financing is best if you’re planning a major home improvement project, like adding a new room or remodeling your entire kitchen.
You’ll have to have adequate home equity to be approved for the loan, which means your home’s appraised value should be higher than what you owe on your mortgage. Remember if you don’t make your payments on time, you could face foreclosure. However, home equity lines of credit have changeable interest rates, so your payments can go up or down depending on the condition of the housing market.
Home Equity Loan
Instead of a home equity line of credit, you may want to try for a home equity loan, also called a second mortgage. The funds from this loan are paid to you in one lump sum and you can repay it over a period of years by making monthly payments. You can use a home equity loan for renovations, but people often use the funds to consolidate their overall debt as well.
You don’t have to be concerned with fluctuations in the housing market when you have a home equity loan. Your interest rate and monthly payments will remain the same throughout the term of the loan. However, interest rates for HELOCs are usually higher than other financing options.
If you already know how much your home improvement project will cost, HELOCs could be the ideal solution to help you bring your home project to life. You won’t have to worry about requesting a loan amount that is more than you actually need.
For instance, if you want to replace the roof of your home and you live in the Austin area, you can get a quote from the Austin roofing company of your choice so you’ll know just how much you’re going to spend on the renovation.
However, you have to be careful not to miss payments, because your home is the collateral. If you fall too far behind on your home equity line of credit payments, your house could go into foreclosure.
When you refinance your home, your current mortgage is replaced with a new loan and interest rate. You get to keep the difference of the new mortgage if the new loan is bigger than your old mortgage. This means you can use the extra money in the form of a cash-out refinance to pay for your home renovations.
other valuable tips:
There are several reasons why people choose refinancing for home improvement projects. For instance, if you select this option during a time when rates are low, you may get a lower interest rate than what you’re paying on your current mortgage. Even if most of the money goes toward your home remodeling efforts, you may have some cash left over to take care of other debts.
Before you select the home improvement financing that works best for you, take a detailed look at your budget and the type of renovations you want for your home. This will help you make the best financial decision for your remodeling project.
Image Credit: finance major home improvements by envato.com
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