If you’re wondering the best ways to finance home remodeling projects for your house, or even for a relative who may be aging and need improvements, let us walk you through the options. Home renovations can become very expensive, but you don’t have to skip out on the fun of life to save up necessarily. More and more banks and other lending institutions are offering more and more options to get people into homes they love and that will appreciate over time.
Check out a Home Equity Line of Credit.
Borrow what you need, only pay interest during the period that you are drawing out money, and you can continue drawing as needed up to the amount you’re approved for. If you didn’t want to totally refinance your home, ask your banking institution about the options and rates for a HELOC. This is a wonderful option for financing home remodeling because it’s a shorter process and isn’t lumped into your home. After the “draw period,” as they call it, your payments will go up as you are paying the actual amount AND the interest.
Apply for a Home Equity Loan.
A home equity loan allows you to borrow against your home, in one lump sum. With this, you keep your original mortgage, which is fantastic especially if you have secured it with a slow interest rate. The negative with this loan is that you are owing interest AND the sum from day one.
Look into a Cash-Out Refinance.
A lot of banks or lending institutions will offer up to 80% of your home’s value for home remodeling projects. Plus, did you know, sometimes even the interest you’d be paying can be tax deductible? With a cash-out refinance, you get one big lump sum. You DO NOT keep your original mortgage, however. With a refinance you get a new mortgage, which means new interest rates and closing costs.
Try a Home Remodeling Loan.
If the equity just isn’t there with your current home and some drastic renovations need to be performed, the Home Remodeling or Construction Loan may be the one for you. The lending institution you use can base your loan on the future, potential equity rather than what you already have, which is a real pro of this loan. The onus is then on you, however, to make sure your money is spent most effectively to maximize the equity POST-renovation. If you don’t, you may have to refinance what you don’t cover, which can be a hassle.
Apply for an FHA 203k.
This is another option if you have a lot of repairs and renovations to make, but don’t have the equity currently. It’s a lot of paperwork as you have to prove the problems with the house, but you can often get very low interest rates and you can borrow up to 110% of the home’s projected value POST-renovation.
Tap into your 401k.
Because it’s already your money, the funds in your 401k require much less paperwork to withdraw and using these funds don’t ding your credit. Repayment can be quicker than other types of loans in this blog post and you could be tapping into your future retirement, but the interest can be low and you can get working quicker.
Entertain a Reverse Mortgage.
If you’re on the mature side (over 62) and you’re looking to make some home renovations, a Reverse Mortgage may be the answer. This is based again on the CURRENT equity of your home. You don’t pay it back, but it comes out of your estate when you pass on, so it’s important that you are still mindful of how much you spend.
One or more of these options might be a good fit for the home renovation projects you are looking to complete. Home Remedy suggests talking with your financial planner, lending institutions, and preferred contractors to walk through the pros and cons of a few options before you make your decision. Develop your budget, get approved and get into the home you love!