Acquiring funding to renovate your home is a vital part of the whole renovation project. You can choose from several financing options to help achieve this feat. These options allow you to fund your renovation plans without giving you too much of a burden when it comes to your finances. As such, there are a lot of factors that will eventually help you make your choice. Such factors include:
- Cost of the project
- Available money
- The duration the project will take to complete
- If you want to do additional home improvement work in the future
- Your equity in your home
This article will guide you in determining the best way to fund your home renovation project. These are as follows:
1. Using Your Credit Card
A typical home renovation project will set you back by anything from a few hundred to several thousands of dollars. Renovation experts trusted-roofing.com point out, one of the options open to you to make the payments is your credit card. In case you opt to use credit cards for such expenses, remember that the interest rates will be on the higher side. However, the high-interest costs are somewhat offset by avoiding loan closing costs or fees. However, credit card payment for your home renovation is viable if you have the option to repay the amount over several months.
2. Unsecured Personal Loan
A personal loan is something that the vast majority of people are familiar with. In the case of unsecured personal loans, there is no collateral. Or in other words, failure of payment does not necessarily mean loss of property. You can get a personal loan from three familiar sources:
- Friends and family
- Banks (<$10,000)
- Non-banking institutions and payday loans
You stand to spend a whole lot less in the form of exorbitant interest rates if you stay away from loans provided by non-banking institutions and payday loans.
3. Home Equity Loan
You can finance your home remodeling by taking a home equity loan. In this loan type, your house is the collateral in which is akin to a primary mortgage. However, what makes home equity loans different is that your home equity or the home value minus the current mortgage amount serves as your collateral. The amount you borrow is fixed, making the option particularly attractive for one-time posts like home renovation. Typically interest rates are also fixed, which means interest rates will be fixed throughout the loan repayment. The last benefit of home equity loans deserves mention- the loan is tax-deductible if you are taking the loan to carry out home improvement.
4. Home Equity Line Of Credit- Popularly Abbreviated As HELOC
A HELOC has many similarities with home equity loans in that your home serves as collateral to ensure loan repayment. HELOC serves the function of a revolving line of credit and lets you withdraw varying sums of money over a period with a specific maximum borrowed amount set before.
That latter is determined by how much home equity you have in your home. HELOC is particularly suitable for you if your home improvement project is long term. Interest rates also vary and start low and go higher with higher amounts of withdrawal. The interest you pay for HELOC is tax-deductible too.
5. Taking Loans From Your 401(k)
Mind that such loans will mean that you will have to return the full balance if you quit your job, or otherwise, you might face heavy taxes and penalties. Additional taxes and penalties are also in order if you fail to repay the loan amount within five years. It will also negatively affect your retirement fund in terms of the final sum you receive.
6. Title 1 Loan
Banks provide title 1 variety of loans, but the federal government insures the loan. The purpose envisaged for the loan is to facilitate nonresidential building construction and, at most medium-level property rehabilitation. Your home is the collateral in this type of loan, and you must pay closing fees and interests. The maximum loan amount for this type is $25,000, and it is suitable for people who don’t have equity in their homes.
Before signing off, it would be helpful for you to know that it is better that you steer clear of financing provided by contractors or moneylenders they refer you to. These loans are full of hidden fees and costs and are not worth the trouble, hassles, and additional expenses. So, stick to negotiating the price with your construction company while obtaining finance through one of the means mentioned above. Remember, the right information is empowerment. After going through this article, keep in mind to consult other relevant online resources. Wishing you a happy, great looking home!