If you’re planning a home renovation project, it can feel like an overwhelming undertaking. There’s the design phase, which involves picking out all the finishes.
Then there’s the building phase, which requires dealing with contractors and building codes. But even after all of that, you still have to figure out how to pay for all of this! Luckily, financing your renovation project is easier than you think. Here are four different ways you can finance your renovation:
Start Savings account for remodeling project
- Start a savings account for the remodeling project. Set aside a portion of your income to go toward this specific purpose and don’t spend any money on anything else until it’s paid off.
- Avoid using credit cards or loans for financing home renovation projects, as these options can be expensive and difficult to pay off quickly (or ever).
Home equity loan
A home equity loan is a loan that is secured by your home. You can borrow up to 80% of the current value of your home, so if you have $300,000 in equity in your house and want to renovate it, then you could take out an 80% loan for $240,000 (the remaining 20% would come from savings).
Home equity loans are repaid with interest over a fixed period of time–usually between 10 and 25 years–and often include an adjustable rate feature so that when interest rates rise again after being low for many years now (as they inevitably will), your payments won’t increase as much as they would otherwise have done if there was no such provision in place.
A personal loan is a type of loan that you get from a bank or other financial institution. Personal loans are unsecured loans, which means they’re not backed by collateral (like your home). They’re typically used for big-ticket items like cars and home renovations.
A personal loan can be used as financing for your project in two ways: 1) as an initial investment to pay for materials or contractors; and 2) as part of the payment plan once construction is complete and you move into the renovated space.
Get a remodeling loan
A remodeling loan is a home-improvement loan that allows you to borrow money for a specific purpose, such as adding an addition or changing the floor plan of your house. It’s important to note that these loans are not designed for major structural changes or repairs, but rather for renovations that improve the value of your home without modifying its physical structure.
You will need to meet several requirements before being approved for one of these loans:
- You must be at least 18 years old and have sufficient income (or assets) to cover all monthly payments on your mortgage and other debts;
- The property must be your primary residence;
- You may only borrow up to 75% of its market value or appraised value if it has been rebuilt after being damaged by fire or natural disaster;
Start saving now, it will be worth it.
If you’re looking to finance a home renovation project, it’s important to start saving now. The sooner you can save and put money away, the better. Not only will this allow for more time for interest to accrue in your bank account but it also means that when it comes time for financing, there will be less financial burden on yourself because most lenders require at least 20% down payment on any loan–and often times more than that!
So why should we bother paying off our loans early? Because then we can get better interest rates with our loans than we could with savings accounts or other places where we keep our money safe.
It’s never too early to start saving for your next home renovation project. Even if you don’t think you can afford it now, there are many ways to work towards financing your dream home. Contact us today to find out how we can assist you in your remodeling journey.