When you’re a homeowner, it’s extremely important to make sure your house remains in the best condition possible. At the very least, you need to keep up with needed repairs to maintain your home’s value. When done correctly, remodeling your home — whether you update specific rooms in your home or build an addition — help increase the value of your house. However, before you can begin major renovation projects, you need to make sure you have funding available. Learn how to finance your remodel or home improvement projects without getting in over your head.
Home Equity Loan
The first funding source you should consider is your current mortgage company. If you already have some equity in your home, they may be able to give you a home equity loan. A home equity loan is a type of second mortgage. It’s a lump sum loan that has a fixed interest rate, so you’d pay it back in monthly payments — just like you’d pay your mortgage each month. It’s important to note that in order to qualify for a home equity loan, you need to have equity in your home. This means the house needs to have more value than the amount that you owe on it.
Home Equity Line of Credit
A home equity line of credit works just like a home equity loan — you have to have and maintain equity in your home to qualify for it. However, instead of being a lump sum loan, it’s a revolving line of credit. This means, you can borrow money from the line of credit for whatever remodeling or DIY projects you want to complete and as you pay the loan back, your access to credit becomes available again — kind of like a credit card.
Home Remodeling Loans
Many counties have home remodeling loans available for homeowners who need to make home improvements. Basically, if you qualify for a loan through the county or municipality you reside in, they subsidize your home renovation project, usually at a really low-interest rate. This way, you can afford to make the improvements needed and the county ensures homes in the area are kept up properly — which helps regulate and maintain the value of the houses in the area. Keep in mind, if you do decide to get a home remodeling loan, there’s a good chance the city, county, or municipality you reside in will monitor your entire project and may have guidelines that stipulate what type of home renovation projects the money can be used on.
Credit Cards
Depending on the size of your home renovation project and how much available credit you have on your credit cards, you could use them to finance your project. However, you should probably only finance your home renovation projects using your credit cards if it’s a small project or as a last resort. Typically, credit cards are riskier. They charge higher interest rates than typical loans, and the minimum monthly payments are often higher than that of a fixed rate loan. So while credit cards are an option, you need to be careful using them so that you don’t get in over your head.
Cash and Liquid Assets
Before you borrow any money you should take the time to see what cash and liquid assets you have on hand. Gather money from your checking and saving accounts, see if any CDs or savings bonds you own are nearing maturity. While this option may not be possible if you’re completing a big renovation project, if you can pay for your project with cash, consider it. When you use your liquid assets to pay for your projects, you aren’t tied to a lender and you don’t need to worry about paying interest.
Finding funding options for your home renovation project isn’t overly difficult if you know where to look. So take the time to review all of your options and choose the one that suits your plans and financial situation the best.
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