An estimated 65% of US homes are more than 25 years old, according to LanGorilla, which means many of these structures require repairs, renovations, or updates. In addition, for people who have not gotten their hands on a move-in-ready home, upgrading an existing one is the next best thing. If you’re planning a home remodel, financing your project is one of the primary concerns you have to address. Here’s how to find the money that you need to pay for your dream renovation project.
When Financing Is Right for a Home Improvement
How you pay for a home renovation depends on your finances and the size of your undertaking. Ideally, saving up for it and using those funds is the best option for a home upgrade. However, this is not always the case as many expenses are running in your household. In addition, you must always put aside a rainy day fund for emergencies such as car repairs or extra medical costs. Hence, if you have larger upgrades in mind, you might have to look for financing to realize your project.
One way to do it is to go for a cash out refinance, which will replace your existing loan with a new mortgage and a new interest rate. It works because you use the equity that you have built through the years and use it towards home repairs and improvements. It’s also possible to pay off credit cards and other high-interest-bearing debts that you have. Essentially, the difference between your original mortgage and the new one is the available amount that you can use to fund your home improvements. As with any refinancing scheme, consider drawbacks such as appraisal and closing-related fees and the longer life of your loan.
Other Ways to Pay for Renovations
Another way to get your remodel or repairs done is to get home improvement loans. These are unsecured and personal loans given by banks, online lenders, and credit unions. The advantage of this type of loan is that you don’t need to put up your home as collateral to qualify, as financial institutions look at your credit score to determine interest rates and credit sums. However, these loans have shorter repayment periods, higher interest rates, and lower amounts, making them suitable for small or midsize home improvement initiatives.
You can also opt for a secured loan backed by your house, such as the home equity line of credit (HELOC). To qualify, ensure that you have at least 15-20% equity in your property. The pro of this type of loan is that you can get lower interest rates than unsecured personal loans. Since it works like a revolving credit allowing you to take money when you require it, the facility is a great option for ongoing or long renovation projects. However, be aware that your home can be foreclosed if you don’t make your payments on time. Plus, interest rates are variable and depend on market conditions.
Renovating your abode into your dream home may require a large number of resources. The good news is there are several ways to finance your project, including cash-out refinance, personal loans, and HELOC.