Many people are hesitant to commit to a home renovation because they’re unsure if they’ll be able to afford it or how to go about paying it off. We understand this concern because the decision to renovate your home is not only a huge investment from a financial standpoint but time as well. So, we decided to put together some information on the most common ways to pay off a home renovation project to give you some peace of mind if you’re thinking of getting started.
FREE Consultation
We refuse to charge a fee or require a deposit to schedule a meeting or get started on drawings like some contractors or architects do! That’s because we feel the initial meeting is vital to starting off on the right foot which is why we offer free consultations where we’ll sit with you to discuss your wants and needs. This helps us come up with a design plan as well as a transparent budget that everyone can be happy with before moving forward. Once the agreement is signed and we’re ready to get started we’ll even put together a payment schedule that maps out the entire project to help keep you on track.
Cash In Your Savings
Assuming you have the money available, paying cash is the most straightforward method. The obvious benefit is you will not have to go through the hassle of getting approved for any loans or be required to pay back any interest or debt at the conclusion of the job which can negatively affect your credit score. On the other hand, this option means you will have to plan ahead to give yourself time to save up enough to cover the cost which could delay your project.
Borrow Now, Pay Later
According to a recent Bankrate survey, credit cards (37.4%), home equity loans (8.6%), and personal loans (8.5%) account for more than half of payment methods for home remodels. The big draw for these options is they allow you to get started on your project sooner because unlike having to save up, you’ll more than likely have the money available in only a couple of days after going through an approval process. The risk involved however, as we briefly mentioned before, since the funds are being borrowed from the bank you will be required to reimburse them at the conclusion of your agreement most likely with interest included.
Here are some of the most common borrowing methods defined:
- Home Equity Line of Credit (HELOC)-This is an agreement that is backed by your home which makes it more flexible. Therefore, you’ll have a higher borrowing limit with lower rates, and is a form of revolving credit meaning you can borrow as you need and only pay interest on that amount. This is especially beneficial for bigger jobs if it goes over the initial budget. If you fail to make payments on time your home can be foreclosed at any time, however.
- Cash-Out Refinance-Like the name implies, you’re basically replacing your existing mortgage with a loan which could improve interest rates and give you access to more money but similar to a HELOC you’re putting your home at risk if you go into default.
- 203(k) Loans-This is a government-issued mortgage through the Federal Housing Authority (FHA) to help cover home repairs or improvements. These come in two types, limited allows you to borrow up to $35,000 for small to mid-range projects while standard loans help finance larger jobs like structural issues.
- Personal Loans-Unlike home equity loans, these do not involve having to use your home as collateral but as a result you’ll have access to smaller amounts and the rates tend to be higher with shorter repayment terms making them less common for paying off home improvements.
- Construction Loans-A short-term, high-interest option used specifically for renovations. Unlike personal loans which are generally paid as a lump sum, these are paid out in stages as the job progresses (when the foundation is laid, framing begins, etc.). There are several types, for example, construction to permanent gives you the option to transfer the loan into a mortgage once the building is complete but you can also opt for a construction-only loan which requires you to pay the amount back in full at completion.
- Credit Cards-These are typically better served for smaller DIY improvements because they usually will only grant you a credit line of a couple of thousand dollars.
Let Us Help
We take pride in providing our clients with the best customer experience by making the process as stress free as possible! We also have great relationships with several local banks and lenders so we can help put you in touch with the right person depending on what’s best for your individual situation. Give us a call at 631.256.6355 if you have any questions or are ready to get started on your next project!