If you are looking to remodel or renovate your home, odds are you will need to consider financing options — especially if involves a major home improvement project. Even if you are flush with cash, you may decide that you do not want to plunk down a large sum of money and would prefer to go the finance route. So what are your options? Where should you start?
Financing a Home Remodeling or Renovation Project
Financing a home remodel or home renovation has many benefits for a homeowner — so long as you are making smart decisions with regards to what type of financing and what sort of home improvement projects you are looking to undertake. Ideally, you will look for renovations or remodels that will add value to your home, as well is improve the aesthetics or functionality.
Remember, anything you do to your home should be treated as an investment. Weigh the pros of any home project you tackle and decide if it makes sense from a financial perspective, as well as a functional one. Decide upon a budget (and a contingency/emergency budget) and stick to it. Finally, look at your options for financing and choose the one that works for your particular situation.
Home Improvement Financing Options
Below are some common ways homeowners fund their home improvement projects.
Pay Cash for Your Home Remodel or Renovation
Perhaps the easiest, most financially sound, way for you to pay for your home remodel is to do so with cash — so long as you have cash on hand to do so. This method lets you to avoid any associated financing fees and cuts out monthly payments. In addition, paying with cash means you will not add to your debt or to your mortgage. For most homeowners, this is only a possibility for small home improvements; however, if you can afford it, it is definitely the way to go for major home projects as well.
Home Equity Line of Credit (HELOC) or Home Equity Loan for Home Improvement
People often get confused when speaking about a home equity line of credit (HELOC) and a home equity loan, assuming that they are, in fact, the same thing. However, they are two very different types of loans. A HELOC lets you borrow money against the built-up equity in your home and pay back the loan over a the terms you agree upon (for instance, 30 years). You do not have to pay interest on the amount of money you borrow until you actually use it – and then only on the money that you use. In a sense, it operates much like a credit card, in that you do not have to use all of the money at once (or ever), but are able to pull from it as needed.
A home equity loan, meanwhile, lets you borrow a specific amount of money and pay a fixed amount over the terms of your agreement (anywhere from 5 to 30 years). Its advantage over a home equity line of credit is that it offers a fixed interest rate, versus the adjustable rate of a traditional HELOC.
Borrow Against Your Retirement
If you have a nice investment portfolio, including a 401(k), you are eligible to borrow against it, with a few caveats. First, you always want to avoid dipping into your retirement fund unless you really need it, as you do not know what the future holds and, after all, you were saving that money for something special indeed — your retirement. As you get older, you may not have the earning power you currently have, so making sure you have a nest egg at the end of your “work journey” is important.
However, there are times when you may deem it necessary to borrow against your 401(k) for home improvements, and if you find yourself in that situation, know that it exists. You will typically need to pay back your loan over the course of five years. However, if you lose your current job, you might have to pay back the loan immediately.
Other Options To Finance A Home Remodel
There are more options than the four above when it comes to financing a home improvement project. Some other options include:
- Reverse mortgage
- FHA Title 1 and 203k Loans
- Credit Cards
- Construction Loans
- Home Remodeling Company Financing
Financing Your North Georgia Home Remodel
If you live in Georgia and are looking to undertake a home remodel or home renovation, give Tracy Tesmer Design/Remodel a call and let our team of experts home designers and construction professionals make your house a home!