Home improvement is pretty flexible. You don’t have to think much before changing the wall colors or nudging non load bearing walls a couple inches. Sometimes, a house just needs that extra loving and care to make it more livable.
Whether you have been living in your house for decades or a few months, improvements are always a wise decision. The best part is that when it comes to paying for home renovations, homeowners have a number of choices.
1. Personal loans
Mid-size projects like window replacements or getting a bathroom makeover are best funded through personal loans. It doesn’t matter whether your project is DIY or you are hiring professionals, personal loans can help you pay for the entire project, or at least, offset certain costs.
There are numerous advantages to personal loans. You can find them easily by applying to credit unions, banks or the various online lenders. Make sure you compare different lenders based on the interest rates, fees, and repayment terms.
2. Mortgage refinance
Mortgage refinance could help make your existing deal better if you financed your home when the interest rates were higher than the current market rate. This can lower your monthly payments which can free up much-needed cash. You can use this for your dream renovation.
You could also consider a cash-out refinance which lets you tap into your house equity. Lenders tend to allow up to 80% of the home’s value. This may be enough to pay off your current mortgage and leave some extra cash. Typically, cash-out refinance is advisable only when the home improvements add to the current market value of your property.
Make sure you don’t jump into this option without careful consideration. Refinancing usually uses your home as collateral, especially when you are going in for a bigger loan. You are essentially financing short term payments with long term debt. You need to consider added interest rates and additional fee.
3. Home equity line of credit
Home equity line of credit or HELOC is a great way to borrow against the current value of your home. It is unlike refinance since it doesn’t actually pay off the original mortgage. Instead, what you get is a line of credit, which is again up to 80% of your home’s value.
There is a repayment and a draw period in HELOC. You are allowed to spend the amount in your credit line during the draw period, which is typically 10 years. The monthly payments tend to cover only the interest and a small share of the principal outstanding balance.
Your monthly payments would be higher during the repayment period since it will include more principal. Repayment periods tend to be for 15 years.
4. Credit cards
Minor updates, like installing a new closet system or upgrading the bathroom vanity is best paid through credit cards. This is especially true if your credit card is interest-free. You could pay for your home improvements without any interest if you have a 0% introductory APR card.
Certain credit cards come with great rewards as well. This means the more you spend on the renovation, the more discounts or cashback you stand to earn. Make sure you get all the details to an offer from your credit card provider before going on a spending rampage.
Credit cards should never be used for large home improvement purchases even if you have the credit limit. You could end up facing exorbitant interest amounts if the introductory offer expires before you manage to pay it off. This will be much higher than other loan options.
5. Government loans
Government loan is also a fine option for home improvement financing if you qualify for it. You could save the cost of both interest and insurance if you manage to get a government loan.
HUD Title 1 Property Improvement Loan is a type of government loan that allows homeowners to borrow up to $25,000. These loans are provided even when you don’t have equity in your property. This option is best suited to new homeowners who are looking to make upgrades.
The only catch is that the loan amount must go towards renovations which improve the livability of a house. Certain upgrades may not qualify for this loan option.
Home Improvement Program or HIP loans are not exactly free renovation loans from your county, but they are pretty close. Municipalities and counties subsidize all or a certain portion of the interest on your home improvements loan so as to preserve local housing stock.
You can get cash-out refinance loans from Veteran Affairs as well, which guarantees complete value of your home. VA loan guarantee refers to the “insurance” provided to a lender in case the borrower is unable to make payments.