A Guide to Financing a Home Improvement Project
Now and then, homeowners need to do some sprucing up in their houses. Some want to redecorate their interior, while others actually need to extend their living space. While such work sounds exciting, it requires some serious funds too. The first obvious step is setting a realistic budget for your home improvement project.
Ideally, you need to account for the type of work (DIY or hire a contractor), the rentals, the materials, and much more. Following that, you now proceed with planning the financing. To find out the best finance options, check out our list below.
- Personal loan
One of the most popular financing options is a personal loan. Compared to traditional loans, this type of loan can be easier to qualify for and often have fewer requirements. In general, most personal loans have high-interest rates, limited borrowing power, and short repayment periods.
However, this is an excellent option if you need a fairly smaller amount of money for a home repair or improvement. It’s recommended to find a reliable small personal loan provider with more manageable terms. You can also find financial institutions with a simple and quick application process in case you need the money immediately.
- Credit cards
Credit cards are among the easiest finance options for home renovations and improvements. This is pretty obvious as some readily have at least one credit card. For this, it is best to first ask your supplier or contractors if they accept the credit cards that you have. Some only accept cards from specific banks.
Or, you can find a different company to hire for the project in case they don’t accept cards. Nonetheless, it would be best if you use several credit cards and spread the cost on them. You can easily apply for a credit card with lower interest rates. Avoid maxing out your credit cards as it can be unhealthy for your score, especially if you can’t pay the debts on time.
- Government loans
Another option is the FHA 203(k) loan provided by the U.S. Department of Housing and Urban Development (HUD). Whether you’re refinancing your existing mortgage or buying a new house, this program enables you to include the house improvements in your mortgage’s finance amount.
Apart from this, there’s also the Title I Property Improvement Loans by HUD, which can be utilized to fund a home renovation. This includes types of work such as home improvements, alterations, and repairs. You can use this in conjunction with the 203(k) loan or as an individual loan. Other government loans you may try to apply for include Fannie Mae HomeStyle Renovation Mortgage, Weatherization Assistance Program, and VA Home Loan. Take note that certain contractors may not accept work financed using government loans, so confirm it first.
- Home equity loan
Often referred to as a second mortgage, a home equity loan is another great way to finance a home improvement project. To take out a home equity loan, the lender usually requires borrowers to possess an 80% loan-to-value ratio. In other words, you’ll need to have at least a home equity of 20%. If you qualify for this type of loan, you’ll get a lump sum of cash.
And just like other first mortgages, you’ll have to deal with closing costs such as origination fees and loan processing fees. On average, you are likely to pay an extra 2% to 5% from your loan amount. Furthermore, these loans are also repaid with consistent monthly payments, and borrowers may get a lower interest rate since they are secured loans.
- Save and wait
Waiting until you have the cash is an ideal option, especially if you’re planning for a cosmetic renovation. Instead of working your way to getting a loan, there are several ways for you to save money until the renovation starts. You don’t need to deal with interest rates, fees, and more.
Waiting until you have the cash is also a smarter way to stay within your budget as it eliminates the extra costs that come with refinancing or loans. If you don’t have a savings account, opening one and keeping your money there is ideal. It’s secured and could potentially earn you great interest.
Regardless if you are planning to revamp your old attic and basement or building a home extension, finding the right way to finance the project is essential. While these finance options are generally ideal for any improvement, we suggest seeking advice from a finance expert if you’re planning for a big project with a huge cost. This way, you know what you’re getting into and make the best decision for it.
Meta title: Providing Funds for Your Home Improvement Project
meta desc: Home renovations are usually a costly expense, which is why many struggle to even fund them. Explore the different tactics to finance these projects.