Your home is the focal area of your family’s life and you are always looking for ways to make it better. You might want to add a room to accommodate a growing family or finish the basement to make it a recreation room. Maybe you just want to update your color schemes with a new paint job or carpeting. There are many ways that you can choose to improve your home.
Home improvements all come with a cost. That cost can range from a few dollars spent on a new shrub to many tens of thousands of dollars invested for serious renovations or expansions. Many of these improvements will increase the value of your home, so you hope to be able to recoup all or most of your investment when the time comes to sell.
Where do you get the money to make the improvement in the first place? Here are 5 ways you can go about financing your home improvements.
Use Cash if You Can
Cash and savings are the best way to pay for your home improvements, as you will not be paying any interest fees and will not have a loan to pay off. The problem is getting together the amount of cash needed for anything larger than a small project. If you are like a lot of us, cash is hard to hold onto.
With some planning you can determine a budget and save specifically for your improvement project on a weekly basis, waiting until you have the necessary funds to proceed. While accumulating your funds, you can shop around for the best deals on the products you are interested in, and be ready to go when the time is right.
Even under the best circumstances, using cash will probably only suffice for smaller improvements, such as painting or upgrading some appliances. Many projects will require more financing than you have at hand or can accumulate in a reasonable amount of time.
Refinance Your Current Mortgage
Refinancing your mortgage is one way to finance large home improvement projects. There are a number of benefits you get from refinancing, including converting your current mortgage into one with a lower rate. If you have a variable rate mortgage, you can refinance into a lower fixed rate. You may also be able to lower your monthly payments or get a shorter term mortgage.
According to bankrate.com, another reason to refinance is to extract cash from your equity in your home. This is called a cash-out refinance. You use the same property as collateral, and pay off the first loan with the proceeds of the new one. The excess cash generated from the second loan is then available for use in major home renovations. This is one of the most common methods of financing a large home improvement.
Home Equity Loans
Home equity loans (HEL) and home equity lines of credit (HELOC) represent two other ways to obtain more substantial funds for larger home improvement projects. The amount you will be able to borrow is based on the equity you currently have in your home. It is an alternative to refinancing your mortgage if that is not an option you want to pursue. Perhaps you are happy with your current rate and don’t want to refinance.
Both HEL and HELOC use your home’s equity as the starting point for your loan, but they have substantial differences. When taking out an HEL, you will get all of the money you are borrowing up front, and have a payment schedule of 15 to 30 years. An HELOC lets you withdraw money as you need it, and pay it back based on the amount you have borrowed. Interest terms may vary with HELOCs, so make sure you fully understand what you are signing.
Personal Loans for Home Improvement
Taking out a personal loan for home improvement projects is another option you have when choosing your financing. When taking out a personal loan, the value of your home is not a factor. You can obtain a secured loan, where you have some collateral such as an automobile backing the loan, or an unsecured loan. An unsecured loan only takes into account your personal credit history and finances.
Based on your credit history and FICO score you may be eligible to borrow up to $50,000 with an unsecured personal loan. The better your history the more money a reputable lender will allow you to borrow. You will also pay a lower interest rate on the loan.
If you are considering a personal loan, it is in your best interest to attempt to raise your credit score by paying your bills on time and reducing your debt to credit ratio. Find your credit score and do some research to find the right lender for your credit range.
Zero-Interest Home Remodeling Loans
An option that may be open to you is the use of a zero-interest home remodeling loan. These are loans offered by the local county government to homeowners who meet certain qualifications. According to thespruce.com, these loans often are called HIP or Home Improvement Program loans. The programs are designed to help lower-income families while at the same time preserving the overall housing stock of the county.
Most HIP loans will have a maximum of $50,000 that can be borrowed. Your income and the value of your home must meet the financial guidelines dictated by the program. All your county taxes must be fully paid, and the loan cannot be used for other purposes than the home improvement it was approved to cover. If you qualify, these loans can save you a lot of money while improving your home.
It is important take into account the different interest rates on the various loans you can obtain, and any value that the improvement will add to your home in the event you decide to sell it. With a little work, you should be able to secure the financing you need to proceed with your project.
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