Ways to Finance a Home Renovation Project
If you have decided that it's time to renovate the kitchen, finish the basement or upgrade the HVAC system, you likely know it can be a costly endeavor. In many cases, you could spend $10,000 or more for even a basic remodel or upgrade to your home. The good news is that you can get financing to help pay for the project. What types of financing options could be available?
Put It On a Credit Card
One of the most common ways to pay for a home improvement project is to put the cost on a credit card. If you open a new account, you could get a reduced interest rate for the first 12 to 18 billing cycles. In some cases, you won't pay any interest for up to 24 months. This can be a great way to spread the cost of a new roof or a remodeled bathroom and make it easier to afford.
Take Out a Personal Loan
A personal loan is a loan that you can use for any purpose that you deem necessary. The lender only cares that it sees its money back plus interest in a timely manner. Secured personal loans tend to come with lower interest rates, but those with good credit can get an interest rate of 5 percent or less without collateral.
Lenders may also be willing to lower your interest rates if you make monthly payments through an automatic debit withdrawal. If you are looking to improve your credit score prior to obtaining a personal loan, credit repair companies may be of assistance.
Your Contractor May Offer Financing
The contractor who is doing the work on your home may be able to provide financing for the project. In many cases, this person will offer lines of credit through local or national banks or credit unions. Like any other financing offer, it will be contingent on your credit score and other factors deemed relevant by the lender. The good news is that most who apply for home improvement loans will obtain the credit that they need.
This is because the work is generally secured by a lien until the credit line is repaid. It is possible to only finance a portion of the project if you have money available upfront to pay the contractor. Typically, you pay half of the amount that you will provide on your own upfront and then the other half when the work is completed.
Family or Friends Could Loan You the Money
Individuals who choose to finance a home improvement project could turn to their friends or family for money. If you go this route, be sure to create a formal loan document that outlines the interest rate and repayment schedule. This makes it more likely that you will pay the money back, which can prevent strained relationships between you and the private lender. If there is no friend or family member willing to loan the money, a colleague or even your employer may be willing to do so.
Turn to a Home Equity Loan or Line of Credit
Turning your home's equity into cash can make it easy and affordable to finance a home renovation project. Interest rates are similar to those on first mortgages, and repayment terms can last for 10 years or longer. However, it is important to know that if you don't repay the loan, you could have the home foreclosed on by the lender.
Home renovations are some of the most expensive projects that you will undertake. However, they often come with a return on investment that is close to or more than what you paid. Therefore, it can be in your best interest to find ways to upgrade your property and make it more valuable on the open market.
