Easy Ways to Find Finance for Your Home Renovation
Whether you’ve lived in your home for decades or are just about to start your journey as a homeowner, the idea of customizing your home to fit your style and preferences, as well as necessary repairs to aging homes, can be both exciting and daunting. The exciting part comes without question, but the daunting components often revolve around money.
In addition to paying $9,000 in unavoidable costs and basic maintenance associated with homeownership every year, the typical U.S. homeowner dishes out an additional $3,021 per year on home improvements.
If you’re wondering how to fund your own home improvements, you’re not alone. Nearly half of homeowners who plan to make improvements struggle with how they’ll pay for them. While most homeowners pay for improvements with either cash or debit (57 percent) or with a credit card they pay off immediately (27 percent), others get creative in order to gather up enough money to create their dream homes. Here’s a look at some of those ways, which might help you build your dream home, too.
If you financed your home a few years ago and your interest rate is higher than current market rates, a mortgage refinance could lower your rate — and your monthly payments. And that could free up cash for your dream renovation.
You might also consider a cash-out refinance to tap some of your home’s equity. Lenders will generally let you borrow enough to pay off your current mortgage and take out more cash, usually up to 80% of your home’s value.
Think carefully before you embark on this type of refinance, though: You’ll be using your home as collateral for a bigger loan, and you’ll be financing short-term costs with long-term debt, which adds interest and other fees to the price of the renovations. In most cases, a cash-out refinance is appropriate only if you’re improving your home in ways that will increase its value.
These mortgages offer the tax benefits of conventional mortgages without the closing costs. You get the entire loan up front and pay it off over 15 to 30 years. And because the interest usually is fixed, monthly payments are easy to budget. The drawback: Rates tend to be slightly higher than those for conventional mortgages.
Home-equity lines of credit
These mortgages work kind of like credit cards: Lenders give you a ceiling to which you can borrow; then they charge interest on only the amount used. You can draw funds when you need them — a plus if your project spans many months. Some programs have a minimum withdrawal, while others have checkbook or credit-card access with no minimum. There are no closing costs. Interest rates are adjustable, with most tied to the prime rate.
Home renovation loans
Whether you’re in the market for a fixer-upper or just want to upgrade your current home, that wide array of finance options comes in handy to provide financial assistance for sprucing up any of the dated finishes in your home.
Financing a home renovation not only improves functionality and comfort for your family now, but strategic updates can also increase the value of your home and the future return on your investment if you decide to sell.
Loans for home renovations can be obtained at any point, such as the beginning of the purchasing process or even years down the line — as long as the borrower is eligible. It’s important to keep in mind that different renovation loans have different qualification standards that you’ll need to meet before you can get funding for your project. Some of these loans will also require that you show proof that the funds are being used to pay for labor and materials, while others allow funds to be used to the owner’s discretion.
This option is only if you want to undertake really small renovation projects. The interest rates are usually much higher than on mortgages, but for a very small project that extra interest might actually total less than loan establishment fees.
One thing you must do.There are very few exceptions to the rule that your renovations should add more value to your home than they will cost to carry out. Think about how the money you spend on a renovation will increase the value of your property. For example, consider making changes that would appeal to the majority of potential buyers to help you sell your house faster and at a higher price.