Excited about conducting a home improvement project, but don’t have the proper funds on hand? Well, join the thousands of others who are in your same predicament. Many homeowners are renovating their properties instead of moving to a new home that is bigger or “nicer”. In fact, statistics show that permits for home improvements are at their highest level in five years. Not everyone has the luxury of a big savings account and fortunately, there is hope for you yet. There are a variety of ways that you can finance your home improvement project. It’s just up to you to determine which of the methods best suits your financial situation and preference. Right now, there are a lot of people who are using these methods to upgrade their homes.
Home Equity Loans
This is the first choice for most homeowners looking to have remodeling work done. This is a refinance loan that is taken out against your current mortgage. It is a tax-deductible loan, which is why most people lean more towards this type of financing. The great thing about these is that you can get large sums of money to complete big projects. They are also known to have lower interest rates than personal loans and credit cards. On the down side, you are depleting your equity, which will reduce the sum you get when and if you sell your property. Avoid using the money given on things other than your remodeling projects.
Home equity line of credit is another type of home equity loan. What makes this one different is that you are given a line of credit, versus you borrowing money against your mortgage. This is similar to a credit card. The interest rates for these are pretty lower than home equity loans, but have the same tax advantages in most cases. The requirements for HELOC are stricter than home equity loans.
Borrow from Your 401(K)
If you have sufficient funds in your 401(k) retirement account, you borrow money from it for your home improvement project. Make sure that you repay yourself to avoid financial problems as you reach retirement age.
Credit Cards and Personal Loans
Some people who have large credit limits use their credit cards to pay for their home renovations. Most people who choose this option have more than one credit card with zero-interest for six months to a year. They usually pay off the balance with the other zero-interest credit card, which can be risky. It’s a good way to get money quickly and you can get lucrative points and rewards for buying home-related purchases, but you risk getting high interest fees that you can’t pay off if not managed properly.
Personal loans can also be obtained, but it is best to use personal loans and credit cards for small home improvements, so that you don’t become overwhelmed by the interest rates.