Back in theday, funding a home renovation required a visit to the bank. You’d then havelengthy discussions with a loan officer and hope they approve your application.
Things aredifferent today. You have more options at your disposal than before. Forexample, a mortgage broker can provide over 150 loan programs within a shortperiod. In fact, many lenders are just waiting to offer you tailor-madesolutions. This is even despite your less than stellar credit history.
Therefore, youhave fundingavenues to exploit that you didn’t know existed. However, lenderscontinue to flood the market with all sort of programs, which can beoverwhelming when seeking funding for a home renovation project.
With this inmind, it’s important to get it right from the start. Here’s how:
1. Know the amountof money needed to fund the entire project. In addition, know how much you canget.
2. Sift throughnumerous loan options to find one that matches your financial situation andneeds in general.
3. Focus onlenders who seem likely to extend the credit you need.
Create an Extensive Budget
It doesn’tmatter whether you’ll outsource the job or do it yourself, it’s still vital foryou to have a budget estimate. Lenders tend to force a certain figure on theirclients. If you’re going to work with a contractor, insist on a proposal whichincludes all material and labor costs.
On top of thefinal price, add another 10 percent to cover unexpected events. Once you have arough estimate, it’s time to know how much the lender can give you. Don’t letthe fancy ads mislead you. The amount you’ll get will depend on your creditscore.
They use thisfactor to settle on interest rates, the guaranteedrepayment duration, and when to pay the installments. If you have astellar score, you’ll end up paying a low interest rate. On the other hand, apoor credit means you’ll have to deal with higher interest rates and payments.
1.Your LiquidAssets and Cash
These includeavailable cash such as Certificates of Depositand 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 waitfor an approval or funds transfer.
Disadvantages
You may end upexhausting your reserves.
Homerenovations sometimes require a huge amount in funding. Many people don’t havethis kind of money lying around.
Thoughts onLiquid Assets and Cash: If you have lots of money lying around unused, thenthis is the best option.
2.Credit Cards
With creditcards, it’s quite tricky because you have to clear the debt at the end of themonth. However, this will depend on the type of card. Some cards have zero-interest, which means that you can payoff 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
·Creditcards can mislead you into thinking you have more money than inreality.
Thoughts oncredit cards: It’s advisable to go for credit card funding only if you intendon making small renovations.
3.Home EquityLine of Credit (HELOC)
Also known as ahome equity loan, this is the traditionalmethod to acquire funding to finance a home remodel.
This methodinvolves borrowing money against your home’s current market value. Keep in mindthe value of the home is calculated before the intended renovations. Even then,you cannot access the full amount of your home. Instead, many lenders oftenextend no more than 80 percent on the home’s value.
Advantages
·You can access a sizeable amount to fund therenovations.
·You’ll enjoy reduced interest rates compared tocredit cards and personal loans.
Disadvantages
·If you borrow a large sum against your home’svalue, you may end up with less money after selling it.
·Depending on the project and those unexpectedexpenses mentioned earlier, you may end up with less money than the renovationscost.
4.HomeImprovement Programs (HIP)
While these programs don’t offer free loans, theycome close. Depending on the county you reside in, you can benefit fromsubsidized interest rates.
For example, ifyou take out a $50,000 loan at 8% for a five-year duration, HIP can subsidizethis 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 notbenefit from the HIP
·You still have to pay property taxes. Thisincludes added taxes due to the home improvement
·The program monitors your entire project fromstart to finish. In addition, they don’t fund huge projects such as decks, hottubs, and swimming pools.
Thoughts onHome Improvement Programs: These programs may not be suitable for everyhomeowner. Nevertheless, if you meet their requirements, it’s a fantastic deal.
5.Family andFriends
Do you havefriends and family with someexpert knowledge around home renovations? If yes, then this methodmay save you tons of money. Another way to use these close relationships is byborrowing 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’trepay.
Disadvantages
·While the labor is free, the materials neededaren’t.
·It may be faster and cheaper in the long run tohire professionals, especially if you need to learn how to do some tasks.
·How close you are to the individual will determinewhether you’ll get the help or not.
·Borrowing money from friends or family can causepersonal problems.
Thoughts on friendsand 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 inresolving any issues if either party breaches the agreement.
Bottom Line
Now you knowwhich funding avenues to exploit the next time you intend to renovate yourhome. Overall, you must consider the remodeling costs and weigh them againstlong-term returns. Will you increase your home’s value more through remodelingthan the costs involved?
In addition, sinceso many funding programs exist, it’s important to go through the terms andconditions, especially the interest rates and fees. Afterward, compare them tofind out which program suits your budget.
You must alsolook out predatory lenders who’ll want to take advantage of insufficient loanknowledge or bad credit if they can.
