According to some estimates, 73% of the home proprietors will undertake home improvement projects in the current year. Roughly 66% of them will dip into their savings to get the job done. The remaining will either prefer not to touch their savings or simply don’t have any. They will need to explore the many different options available and decide which best option to finance home renovations for them is.
The one that best suits your needs will depend on numerous factors. The first and foremost factors being the size of your project and obviously its total cost, your credit standing, how much you can afford to pay back each month, the size of your equity, how long you are willing to wait for your loan to be approved and so on.
Home Improvement Loan
The words “home improvement loan” typically refer to an unsecured personal loan that may be utilized to cover the cost of renovation. This type of loan can be acquired through online lenders, credit unions, and banks. Provided you qualify you may be able to secure up to $100,000. The interest rates of personal loans for home improvement can range anywhere from 3 to 36 percent, with the major factor being your credit standing. The better the credit score you have, the lower the rate you will be quoted.
A lot of lenders have predetermined minimum requirements, and credit scores necessary to procure the loan. You can do your research to see whose criteria you meet and after discussions choose the one that offers the best terms. Other than minimum requirements, many lenders will also take into consideration factors like yearly income and existing employment status before making a decision about the rate they can offer. That is why it is a good idea to speak to several before deciding on one.
Personal loans tend to get processed fairly quickly. It is also not secured, and there is a benefit in that. This means lenders generally do not factor in any information about your house when considering giving you a personal loan. It also means that should you fail to meet payments, they can’t repossess your home. There is also a drawback to that, if you miss payments then your credit standing will take a big hit.
On the other hand, if your payments are made in a timely fashion, then your credit score benefits. Personal loans are a good option for new homeowners who haven’t had the opportunity to build much equity, have very good credit standing, and are planning a project which costs less than ten thousand dollars.
Home Equity and Home Equity Lines of Credit Loans
These are two different types of secured personal loans based on the equity you have built on your home over the years. With the HELOC the rates will vary and but you will only pay on what you actually borrow and not the whole of the approved sum. So if you are unsure of the cost of your project, you can get what you estimate the cost to be approved and you are able to borrow only as much as you need, as your project progresses.
The key to home equity loans lies in knowing the cost of your project. As the amount borrowed will be issued as a lump sum upfront, your interest and principal repayments begin immediately. A benefit with this is that because you are also repaying principal back, your equity begins rebuilding right from the start. Loans against home equity have fixed rates since interests are on the low side right now. Getting a home equity loan could mean you get cheap rates on a long-term loan.
In both cases you could face foreclosure should you fail to make payments. Both offer long-term repayment plans, up to 20 years. And in both cases, you need to have some equity built up. The majority of the lenders will insist on 15 to 20 percent equity. Both of these loan options tend to have lesser monthly payments compared to personal home improvement loans. In many states when equity is used as an instrument for remodeling, the interest can be claimed in taxes, thus further bringing down the cost of the loan.
Refinancing a Mortgage
If you have good equity built up on your home, this could prove to be the best option for you. It requires that you take out a new mortgage on your home, and clear the previous debt. This can allow you to pull out a part of the equity.
For example, if the value of your home is $450,000 and the balance of your initial mortgage is $150,000. You can refinance for $200,000 pay off the first mortgage of $150,000 and use the $50,000 towards paying for home renovations. If the new interest rate is significantly lower than the original one, then your monthly payments can end up being lower despite the fact that you removed some of the equity. Covid-19 has hit the economy and the mortgage rates have really taken a hit. The benefit of this can be reaped by homeowners looking to finance a home renovation.
Using Credit Cards to Finance Home Renovations
Credit cards generally tend to be the most expensive form of loan available, costing anything from 12% to 23%. Still a large number of people use this form of credit to pay for home improvements. Should you choose this method, make sure to make the most of it.
Most cards offer rewards with given purchases and these include home upgrades. Many stores also give rebates, so plan to buy supplies from such a store and recover some of those high-interest rates. Another point that can save some money is to make certain the full amount due is paid every month to avoid steep interest.
If the project is small, like the purchase of an appliance or two or a paint job, it might be worthwhile to get a credit card with 0% APR. However, keep in mind that this type of incentive is only temporary and usually expires in twelve to eighteen months. So in order to benefit, make sure you can pay back before the time period runs out. The added benefit to this is the fact that when you pay back the full amount in the allotted time, you also strengthen your credit score.
Government Loans for Home Remodelling
The government offers Title 1 loans which provide benefits similar to those of home equity without having any equity. However, if the loan you need is above $7,500, then your home will have to be used as collateral. You can borrow up to $25,000 with repayments lasting 6 months to 20 years at a fixed interest rate. It is given as a second mortgage so you will end up making two payments every month. The specific requirements for government loans differ from state to state, but in general, the qualifying conditions are relaxed and no minimum credit score is needed.
Save Up for Renovating Your Home
Let’s face it, home renovations are an integral part of owning a home. Call it maintenance costs or upgrades, there will come a point when you will have to spend money on keeping your house comfortable, enjoyable and possibly add value to your most valuable asset. It is a good plant to put a little something aside each month for when that time comes. It is best to pay for cosmetic home renovations with the cash you have saved over time. There are a number of benefits to doing this.
1. Paying cash means not having to worry about loans.
2. If you use the money you save there are greater chances of sticking to a budget.
3. Using the saved cash means you will only do the renovations that are really needed. And there will be fewer chances of impulsive purchases.
You can always save a lot of money on home renovation projects by doing some of the work yourself. Find a vendor on what you can’t do. A lot of vendors carry out jobs on their own time, like in evenings or days off. While your project may take longer to complete, it will cost less.
A good place to locate vendors of repute would be to ask your local home renovation stores. They usually have lists of freelance workers, willing to do the job. But make sure to get a complete estimate of the work to be done and itemize all work so there are no ambiguities. Make sure to get a few bids before settling on any one contractor.