Top Ways to Fund Your Renovation
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.