Are you looking for a new home?
Planning to renovate your current home or buy a new one? If so, there are many financing options available. The type of loan you decide on will be based on several factors including the size of the loan, how long you’ll keep the property, and what kind of property it is.
Choose wisely, and you’ll have the home of your dreams. But choose the wrong financing option, and you could wind up in a pile of debt!
Follow this guide to find out more about financing a home renovation.
Table of Contents
Personal Home Renovation Loans
Are you thinking about getting a personal loan to renovate your home? These are definitely one the most popular options for financing a home renovation. Why? Because personal loans offer you the biggest range of repayment options.
Personal loans make it possible to repay your loan in line with your budget. They even are used for investment purposes.
Another advantage is that personal loans generally have a higher borrowing limit. If you’re planning extensive home renovations, then this means you can borrow more.
Looking to make fast changes to your house? You’ll be glad to know that personal loans are quickly processed. You’ll reasonably expect to get the loan before your renovation begins! Next to that, personal loans usually have a fixed interest rate and therefore make budgeting easier.
One disadvantage is that they often have relatively high interest rates. However, some offer you a lower rate if your credit is great.
Home Equity Loan
Moving on, if you have equity in your home, you might want to consider a home equity loan or credit line. A home equity loan allows you to borrow money against the value of your house.
You can choose between paying off the mortgage over time or taking out a lump sum for renovations. This means that if your project is costly, it offers you all at once.
Once you’ve paid off your home equity loan or credit line, the debt is cleared. However, you would need to keep up with repayments. But if this means your house will be more valuable and worth more, it’s worth considering!
Home Equity Credit
What about home equity credit lines? What are those all about?
Home equity credit lines are similar to home equity loans, but they’re a bit different. If you have money borrowed from your home equity line, you’ll need to pay interest on the amount of money you use.
Applications for home equity loans or credit lines can be made by telephone or over the Internet. It’s likely to require you to fill out an application form and provide your income, debts, and property details.
Keep in mind that some equity lines of credit have variable interest rates. That means the amount of interest you’ll pay will depend on how much money you borrow.
Credit Card Options
Not interested in using your home’s equity in any fashion? No worries! Credit cards provide another convenient financing opportunity.
If you don’t pay off your balance each month in full, however, the amount of money you’ll have to pay in interest will vary. This means that the higher your credit line, the more interest you’ll pay!
Additional perks? Credit cards generally have a low or zero annual fee and offer rewards points for using them. They also can provide you with insurance protection.
When you’re using a credit card for home renovations, you’ll want to be careful. The last thing you want is to choose a card with the wrong terms and interest rates.
Look for cards that don’t have an annual fee. This can save you money in the long run. You won’t have to pay for a card that’s just sitting there.
A good credit card will also have no balance transfer fees if needed. This will help you pay off your debt faster.
If you take out a credit card for home renovations, try to use it only for that purpose. Otherwise, interest charges will continue to build on the balance even when the project is complete!
Saving up Cash
Why not just save up the money and pay cash? This might be an option, but you need to weigh up the pros and cons.
You’ll have no interest payments which is a big plus. However, you will have to make immediate sacrifices within your budget.
Do you have a clear-cut house budget? If not, now’s the time to make one. You can use a budgeting app to help speed things up. Once you know exactly where your money’s going, you can look for savings opportunities.
If you need some extra motivation, set personal goals for yourself along the way. Are you saving with a partner? Together you can challenge each other to save more each week.
Refinance Your Mortgage
Next, you can also refinance your mortgage. To do this, you’ll need to get the help of your bank. Any leftover money can be put towards renovations.
However, if you refinance your home, there’s no guarantee that it will lower your monthly contribution. You might even end up paying more than you do now.
Bottom line is, don’t jump into a mortgage refinance without knowing all of the details. Have your bank help you understand the numbers and the contract. Next, step back and think about whether it’s the right move for you financially.
Home renovation is great, but with all of its expenses, it can be scary too. The timing has to be right.
Affording Home Renovations
Affording home renovations means preparing for the worst-case scenario. When planning your renovation project, don’t forget to include a portion of the overall budget for unexpected costs.
Plan on adding between 10-20% more than your original home renovation estimate. If something goes wrong, the financial cushion will be a big help.
Start Financing a Home Renovation
Now you know about some of the best paths for financing a home renovation. Remember, once you have a home renovation budget in place, stick to it. Don’t let the temptation of beautiful new appliances or sleek cabinets sway your decision.
Go ahead and choose your financing path so you can get started. Before you know it, you’ll have the home of your dreams.
Are you ready for more helpful advice? Then read another article!
