If you are a homeowner, there might come a time when you would want to remodel your home either to improve its functionality, make it attractive or increase its value. For instance, you might want to upgrade your HVAC system, kitchen and bathroom to boost the value of your home or change the roof for curb appeal if you intend to sell your home in the future. Replacing window panes or changing fault faucets are less labor intensive but can improve the functionality of such systems.
Remodeling will always come with its cost whether you are engaging in a large or small project. Lack of adequate funds in improvement is a challenge that faces many property owners. It would, therefore, be advisable to know the financing options at your disposal if you have a home remodeling project. Here are 6 ways that you can consider funding your home renovation project.
Using your available cash from savings to fund your remodeling project can save you from accumulating debts. Some projects like kitchen or bathroom remodeling may, however, demand lump sum financing and saving for the same may take years. Smaller projects like painting a room can easily be funded by cash from your savings. If you choose cash as your financing option when making home improvements, you will be safe from any interests or fees that come with most loans.
2. Credit cards
Another option to finance a small renovation project would be through credit cards. It is easy to qualify for credit cards than most loans. Consider using a credit card with no or low interest. For instance, using a credit card with no interest for the first 12 to 18 months of use would be beneficial to you as long as you make full payments before interest takes effect. Some credit cards may even earn you rewards for purchases. Using credit cards will not risk your home to foreclosure as is the case with most secured loans if you fail to make full payments.
3. Personal or unsecured loans
You can get personal loans from lending institutions like credit unions or banks. These loans attract interests and can be repaid over a period of 2 to 5 years. If you get a personal loan not secured by your home, you will end up paying more interest. The interest rates can be lower if you have a good credit history. You may also not enjoy tax benefits as it would be the case if you had your home as security for the loan. Personal or unsecured loans usually have a longer payback time which may extend to years compared to credit cards which will not exceed a period of 2 years.
4. Cash-out refinancing
A cash-out refinancing system allows you to replace your mortgage with another one and take cash out for your home renovations. With this system, it is possible to finance big projects and enjoy low mortgage rates. Cash-out refinancing plans generally have a 30 years pay back period meaning you can take advantage of the longer pay out plan and enjoy lower monthly payments compared to other financing options like line of credit and home equity loans. On the flip side, you will pay higher on your mortgage again as the payments will be overstretched when the refinancing plan starts. Additionally your annual percentage rate (APR) for the interests will also be higher. This would not be the case if you refinanced your home improvement without taking cash out.
5. Home equity loans (HEL)
If you urgently need a loan with a set amount of money for some home improvements and have a secure way to make the payments, then Home equity loan (HEL) can save you out. This loan is issued in one lump sum and has a fixed interest rate. Most home equity loans require clients to pay both the borrowed amount and the interest within 15 years. There is also an allowance to make monthly payments. Making early payments for your loan may risk you to pre-payment penalty. The terms of payment will however vary with different lenders. Another limitation with these loans is that your home is the collateral for the loan.
6. Home Equity Line of Credit (HELOC)
A home equity line of credit (HELOC) does not allow you to borrow a lump sum amount of money like a home equity loan. Instead, you can borrow money periodically to finance your home improvement projects. HELOCs generally allow homeowners to access loans for 5 to 10 years and pay interests for them during that period. Full payments of the loan can then be made in 15 or more years. Rates for these loans are not fixed and may therefore fluctuate. You can however enjoy doing several home projects after every few years.
It would be worthy to finance projects that add value to your property. Evaluating your financial options is therefore advisable to give you a peace of mind when making any repayments for borrowed funds.