Whether you need to take on a home improvement project to make your residence safer and more comfortable for your family or to increase the value of your property to earn a profit when it comes time to sell, figuring out ways to fund it is often the first step in the process.
While small DIY fixes probably won’t require financing, remodels and large renovations usually make it a necessity. Fortunately, there are many options to consider.
A Home Equity Loan
If you have equity of at least 15 to 20 percent of your home’s value (determined by an appraisal) and decent credit (typically a score of at least 620), a home equity loan may be the way to go. Your home is the collateral as it’s a secured loan that provides you with a lump sum of the money you need for your renovations which is repaid over a certain number of years in fixed monthly payments. But you’ll want to be sure you can keep up with those payments or you could lose your home to foreclosure if you get too far behind.
A Home Equity Line of Credit
This option is one of the most popular ways to finance a home renovation. Like a home equity loan, a home equity line of credit is backed by your home. The difference is you’ll get a revolving line of credit so that you can borrow against it over time, a good option for those who aren’t sure how much their project will cost.
A Cash-Out Refinance
If you don’t want to take out another loan, you can tap your home’s equity by doing a cash-out refinance. You’ll pay off your mortgage by securing a new one to cash out a portion of the equity. You’ll need to have enough equity built, of course, and ensure that the cash-out mortgage rate is higher than what your current rate is.
Special Funding Programs
Consider looking into one of the certified NRIA program providers which include pre-screened contractors who help consumers make necessary home improvements through a wide range of programs that few are aware of.
A Government Loan
There are government loans that can help you improve your property without having any equity built in your home. For example, the U.S. Department of Agriculture (USDA)offers incentives for remodeling to homeowners who are low-income so that they can meet health and safety standards for living.
A Personal Loan
Those who don’t have enough equity build-up to do a cash-out refinance, home equity loan, or home equity line of credit might be able to qualify for a personal loan. As these are unsecured loans, they aren’t backed by your house so the interest rate will be higher, but it’s typically lower than if you were to finance the project using a credit card. The only time that ever makes sense is when you can use a card with a special zero interest rate, although you’ll have to pay off what you charge within a limited period of time.