Do you feel that your home needs a major facelift? Do think it is time to turn your home improvement ideas into a reality?
There are several home improvement projects that any homeowner can pursue. Some involve building an additional room. Others involve remodeling old kitchens and bathrooms. Regardless of the nature of your project, it will increase the resale value of your property.
But before you can start with your project, you need to have the funds. You need to know how to finance your project accordingly.
Continue reading below as we discuss some of the best options to kick-start your project.
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Improving Your Home: How to Finance the Right Way
One way or another, you need to finance your project to get the ball rolling. The question is how to finance your project in a way that will not put you in a tight spot. Check out these options below and find out which ones will work best for you.
Cash Is King
Paying in cash is the best option if you do not want to encounter complications in terms of financing. The same thing goes for all of your liquid assets. These include savings and checking accounts, as well as your savings bonds that are approaching maturity date.
Paying in cash means you don’t have to deal with interest. It also saves you from certain fees and other charges. Moreover, funding will be instant. You don’t need to go through any liquidation process.
But keep in mind that paying in cash also has its own share of cons. It can easily deplete your reserves. You may exhaust your funds for surprise projects and additions that you may think of along the way.
Another option is to use your credit card, though this is not advisable if you are working on a big project. Credit card payments come in different forms. Generally, you pay it off toward the end of every month.
In some cases, you can go for a zero interest offer that spans six months to one year. The good thing about using your credit card is you can get hold of the funds fast. You can also earn rewards and points from your purchases.
On the flipside, using your credit card will expose you to soaring interest rates. You will also need to shoulder some additional fees. Sometimes, using the credit card will give you a false sense of security.
Some homeowners fall into the trap of spending more than what they should, believing that they have more money on their side.
Home Equity Loans
This is perhaps one of the oldest ways of raising funds for house repairs and renovations. A home equity loan taking out a loan against your current home’s equity.
This is attractive for most homeowners who are looking to pursue a huge home improvement project. This is perfect if you are planning to build extensions and additions. In addition, home equity loans have lower interest rates compared to credit cards and personal loans.
The downside happens once you continue to deplete your equity. This reduces the amount of money you can get by the time you decide to sell your property in the future. Because of the large amount of money you can enjoy, there is also a risk of spending on things that do not involve the remodeling project.
With an FHA Title 1 government loan, you can borrow up to as much as $25,000. You can do so even if you do not have any equity in your property. Government loans work best for people who purchased their homes just recently.
Another form of government loan is the VA cash-out refinance. This loan guarantees 100% of your property’s value. And if you fail to meet your payments, the loan guarantee will serve as the insurance for your lender.
This is a type of personal loan that credit unions and banks usually offer. You have the option to choose between a secured or unsecured short-term loan. Both options come with interest that you can pay in a span of two years up to 60 months.
The good thing about short term loans is that the interest rates are generally lower compared to what comes with credit cards.
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You can also refinance your current mortgage to enjoy a new interest rate. This idea is to secure a new loan that is bigger than your previous one. You will then use the difference to pay off your home improvement project.
Refinancing lets you enjoy a lower interest rate. You may also use some of the extra cash to pay off other existing debts. You can also use the money to build up your emergency fund.
But be ready to pay origination fees, appraisal fees, taxes, and closing costs. In addition, refinancing will extend the life of your mortgage further.
Before choosing the type of financing, there are important reminders to consider. Let’s take a look at three important ones.
Research and Due Diligence
You need to conduct your research and due diligence on the cost of materials. If you are planning a DIY project, head on to your nearest hardware and ask for suggestions.
Ask yourself if the project you have in mind will equate to the most value for your property. Prioritize the ones that will give the best value for your money.
Build a Budget with Buffer
When building your budget, make sure you set aside a buffer. This will help you cover for unexpected expenses that may come along the way.
Find the Right Builders
If you decide to hire a professional builder, make sure you tap reputable contractors. Don’t jump into the most affordable in your area. Do some research and pick from at least three contractors.
Consider their track record. Find out what their clients are saying about their work.
Improve Your Home, Today!
Now that you know how to finance your home improvement project, you need to cover all bases. Check out our other guides on home remodeling and start improving your home, today!