It’s time. You’ve reached a point where you’re ready to bring your vision for a home renovation to life. You’ve done enough research on what you want the remodel to include and what the finished project will look like. Now what? It’s time to talk numbers.
Getting financing sorted out is crucial. How will you pay for your home renovation? You must answer this question before you can start.
There are many options at your fingertips — it’s all a matter of choosing what works best for you. Let’s talk through those options below.
Cash or Credit Cards
The most financially-responsible method of paying for a home remodel is to save up money over a period of time and pay cash. This means no interest from a loan or credit card, no putting your home up as collateral, no monthly payments, and no debt.
Obviously the amount of cash you need to save (and how long it will take to save) depends on the scope of your home remodel. The national average of home renovation projects is around $46,000, according to Home Advisor. So if your project is on the more expensive side, it may take longer and be more challenging to rely on cash. In that scenario, consider looking into a bank loan or a home equity line of credit.
Home Improvement Loans
Many banks and credit unions offer personal home improvement loans. They’re considered unsecured, which means you don’t have to use your home as collateral to qualify. These loans are ideal for smaller remodeling projects, like small bathroom updates or full-home window replacements.
For these loans, the amount you qualify for and the interest rate you get are based on your credit score. Interest rates tend to be on the high side, and there may be fees for application processing and late payments. Do your research on home improvement loans available at your local banks and compare interest rates. You don’t have to settle for the first one you find.
Home Equity Lines of Credit (HELOCs)
Want an option that offers a lower interest rate? Consider a home equity line of credit (HELOC), which is a popular option for home renovation financing. This is a type of loan that is considered secure — your home is used as collateral.
There are a few downsides, which are:
- If you miss payments, your home could be foreclosed
- It has variable interest rates, meaning your payment could increase over time
- To qualify, the value of your home needs to be higher than what you owe on your mortgage
Second Mortgage
Also called a home equity loan, you get this loan in a lump sum and repay it back to the bank over a select period of time with fixed monthly payments. Because it uses a fixed interest rate, you don’t have to worry about your payments increasing over time.
Similar to HELOCs, this type of financing uses your home as collateral. That means you have to make payments on time or you risk losing your home to foreclosure. You also need to have more equity in your home than what it’s worth.
Mortgage Refinancing
If the numbers are right, you could refinance your existing mortgage and use the money you save towards a home renovation project. That’s because when you refinance your mortgage, you (ideally) get a lower interest rate, and you can then pocket the difference between your former higher payment and the new, lower one. This is a smart option for both saving cash to pay for a home remodel and lowering your existing debt.
As you can see, there are numerous options for financing a home improvement project. What you decide depends on your individual circumstances: your timeline, the financing options available to you, and the total cost of your remodeling project.
Remodels, Renovations, and Additions in Columbus, Ohio
Dave Fox is an employee-owned company that makes our clients our number one priority. We design and build remodeling, renovation, and addition projects for our clients in Central Ohio and deliver the best value through exceptional craftsmanship, excellent materials, and ethical business practices. Contact us today to learn more and sign up for our newsletter here!