Financial Goal

Top Ways to Fund Your Renovation

9:23 AM



Back in the day, funding a home renovation required a visit to the bank. You’d then have lengthy discussions with a loan officer and hope they approve your application.
Things are different today. You have more options at your disposal than before. For example, a mortgage broker can provide over 150 loan programs within a short period. In fact, many lenders are just waiting to offer you tailor-made solutions. This is even despite your less than stellar credit history.


Therefore, you have funding avenues to exploit that you didn’t know existed. However, lenders continue to flood the market with all sort of programs, which can be overwhelming when seeking funding for a home renovation project.

With this in mind, it’s important to get it right from the start. Here’s how:

1.      Know the amount of money needed to fund the entire project. In addition, know how much you can get.
2.      Sift through numerous loan options to find one that matches your financial situation and needs in general.
3.      Focus on lenders who seem likely to extend the credit you need.

Create an Extensive Budget
It doesn’t matter whether you’ll outsource the job or do it yourself, it’s still vital for you to have a budget estimate. Lenders tend to force a certain figure on their clients. If you’re going to work with a contractor, insist on a proposal which includes all material and labor costs.

On top of the final price, add another 10 percent to cover unexpected events. Once you have a rough estimate, it’s time to know how much the lender can give you. Don’t let the fancy ads mislead you. The amount you’ll get will depend on your credit score.

They use this factor to settle on interest rates, the guaranteed repayment duration, and when to pay the installments. If you have a stellar score, you’ll end up paying a low interest rate. On the other hand, a poor credit means you’ll have to deal with higher interest rates and payments.

1.      Your Liquid Assets and Cash
These include available cash such as Certificates of Deposit and bonds close to their maturity, as well as your checking and savings. Nevertheless, cash is the fastest and easiest way to fund a renovation project, since you aren’t tied to any other terms and conditions.
Advantages
·         No charges, fees, or interest rates
·         You don’t have to depend on anyone.
·         Funding is fast. This means you don’t have to wait for an approval or funds transfer.
Disadvantages
You may end up exhausting your reserves.
Home renovations sometimes require a huge amount in funding. Many people don’t have this kind of money lying around.
Thoughts on Liquid Assets and Cash: If you have lots of money lying around unused, then this is the best option.

2.      Credit Cards
With credit cards, it’s quite tricky because you have to clear the debt at the end of the month. However, this will depend on the type of card. Some cards have zero-interest, which means that you can pay off what you owe after 6 months or a year with no interest payments.
Advantages
·         Money is available in an instant.
·         You’ll enjoy rewards or points using the card.
Disadvantages
·         High fees and interest rates
·         Credit cards can mislead you into thinking you have more money than in reality.
Thoughts on credit cards: It’s advisable to go for credit card funding only if you intend on making small renovations.

3.      Home Equity Line of Credit (HELOC)
Also known as a home equity loan, this is the traditional method to acquire funding to finance a home remodel.
This method involves borrowing money against your home’s current market value. Keep in mind the value of the home is calculated before the intended renovations. Even then, you cannot access the full amount of your home. Instead, many lenders often extend no more than 80 percent on the home’s value.
Advantages
·         You can access a sizeable amount to fund the renovations.
·         You’ll enjoy reduced interest rates compared to credit cards and personal loans.
Disadvantages
·         If you borrow a large sum against your home’s value, you may end up with less money after selling it.
·         Depending on the project and those unexpected expenses mentioned earlier, you may end up with less money than the renovations cost.

4.      Home Improvement Programs (HIP)
While these programs don’t offer free loans, they come close. Depending on the county you reside in, you can benefit from subsidized interest rates.
For example, if you take out a $50,000 loan at 8% for a five-year duration, HIP can subsidize this to bring it down to as low as 3 percent. Therefore, you’ll end up saving $4,215 in interest.
Advantages
·         You’ll enjoy free subsidies on loan interests.
Disadvantages
·         If you need more than $50,000, then you may not benefit from the HIP
·         You still have to pay property taxes. This includes added taxes due to the home improvement
·         The program monitors your entire project from start to finish. In addition, they don’t fund huge projects such as decks, hot tubs, and swimming pools.
Thoughts on Home Improvement Programs: These programs may not be suitable for every homeowner. Nevertheless, if you meet their requirements, it’s a fantastic deal.

5.      Family and Friends
Do you have friends and family with some expert knowledge around home renovations? If yes, then this method may save you tons of money. Another way to use these close relationships is by borrowing money from friends or family.
Advantages
·         You won’t incur labor costs.
·         The project is 100%under your guidance.
·         Low to zero interest rates
·         No thoughts on losing your property if you don’t repay.
Disadvantages
·         While the labor is free, the materials needed aren’t.
·         It may be faster and cheaper in the long run to hire professionals, especially if you need to learn how to do some tasks.
·         How close you are to the individual will determine whether you’ll get the help or not.
·         Borrowing money from friends or family can cause personal problems.
Thoughts on friends and family: Friends and family are a shortcut to your funding problems. However, it’s important to put all the agreements on paper. This will help in resolving any issues if either party breaches the agreement.


Bottom Line
Now you know which funding avenues to exploit the next time you intend to renovate your home. Overall, you must consider the remodeling costs and weigh them against long-term returns. Will you increase your home’s value more through remodeling than the costs involved?

In addition, since so many funding programs exist, it’s important to go through the terms and conditions, especially the interest rates and fees. Afterward, compare them to find out which program suits your budget.

You must also look out predatory lenders who’ll want to take advantage of insufficient loan knowledge or bad credit if they can.




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