Ready to transform your house into the home of your dream? Here’s everything you need to know about paying for a house renovation.
Want to tackle those renovations you’ve had on hold because of cost? Don’t wait any longer. We’ve gathered your options for financing home renovations. So you can start enjoying your home now.
Ready to transform your house into the home of your dreams? Here’s everything you need to know about paying for a house renovation.
Say Hello to HELOC
The best way to finance a home improvement project is to pay with cash. Paying cash for a house renovation will prevent you from having to pay interest from borrowing money. But most of us don’t have a ton of cash lying around!
That’s when a Home Equity Line of Credit or (HELOC) comes in handy. A HELOC gives you a revolving line of credit that is backed up by your home. It’s kind of like having a credit card that is borrowed off of the value of your home.
HELOCs don’t offer a fixed interest rate the way home equity loans do. This means over time the interests rates can go up or down. It is recommended to only take a HELOC if you are able to pay it back within a few years.
A HELOC is a good option if you’re not sure exactly how much your renovations will cost, and you need to borrow varying amounts of money. Luckily, you can typically take up to 90-95% of the equity in your home.
Keep in mind that if you miss payments, the bank is able to foreclose on your home. This can be scary, but taking a lien on your home allows you access to lower interest rates and possibly a mortgage interest tax deduction.
Long Term Loans
If you need some time to make payments back on a large renovation or possibly even building your home, then home equity or personal loan might be a better option.
Loans are great if you need more time to pay back a large sum of money. They also can offer a fixed interest rate so you know exactly how much you need to pay each month. If you take a home equity loan or a second mortgage on your home, be sure you are able to make the payments each month.
Want to build a house from the ground up and can’t take a lien on the equity? You should read more on this topic. Taking a loan for a new construction property is trickier than taking a second mortgage.
Personal loans can be taken from banks, credit unions, or other lenders. They are great for small projects and repairs. You can shop around for the best interest rates. These loans are based on your credit score, so you don’t have to use your house as collateral.
Refinancing Your Mortgage
If the above options don’t fit your needs, then think about refinancing your mortgage. This is when you replace your mortgage with a new one. Typically this means a different interest rate as well as a larger loan.
You then pocket the difference and use it for your renovations or other emergency funds. Refinancing your mortgage comes with additional fees from closing costs and other things like taxes, a new appraisal, and origination fees.
On the plus side, you may be able to lock in a lower interest rate. If not, refinancing is probably not your best option and could end up costing you more in the long run.
Ready for a House Renovation?
If you’re ready to get started on a house renovation, then finding the perfect financing option for you is key. Whether you’re remodeling your home or constructing your dream house from the ground up, we’re here to help you every step of the way.