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6 Best Ways To Finance Home Improvements
Home improvement projects can be expensive and often require financing. Luckily, several options are available to help you find the best option for your situation.
1. Save
The safest financial option to pay for your home renovation is to save a chunk of money for your project. If you don’t already have a large sum of money saved, this option can mean waiting longer to start your project. But, it also means you won’t have to worry about paying back a loan or large credit card bill once you finish your home renovation.
2. Cash-out Refinance
A cash-out refinance replaces your current mortgage with a new, larger loan and gives you a new interest rate. Because you get to pocket the difference between your old mortgage and the new loan, you could use the extra dollars from a cash-out refinance to make home improvements.
A cash-out refinance is a good option for homeowners who would not be able to afford an additional monthly loan payment without refinancing and who qualify for a better interest rate than they have with their existing mortgage. Because this financing method depends on the state of your current mortgage and comes with added costs, a cash-out refinance is best suited for smaller projects and emergency repairs.
3. Home Improvement Loans
Home improvement loans are unsecured personal loans offered by banks, credit unions and a number of online lenders. Because the loans are unsecured, you don’t need to use your house as collateral to qualify. Your interest rate and qualification are based largely on your credit score. Funding comes quickly; once you agree to the terms, many lenders deposit money straight into your account in as little as a day.
4. Home Equity Line Of Credit (HELOC)
Because a HELOC is a secured loan — backed by your home — you can qualify for lower interest rates than you would with an unsecured personal loan. A HELOC is also revolving credit, which means you can take what you need when you need it (up to your borrowing limit). Because of this flexibility, HELOCs are well-suited for longer, bigger projects.
5. Home Equity Loan
Instead of a HELOC, you could apply for a home equity loan, which is sometimes referred to as a second mortgage. This is a loan paid out in a lump sum that you can repay over a number of years in regular fixed monthly payments.
Home equity loans have much higher borrowing limits and repayment periods than home improvement loans. Home equity loans are also secured, meaning you put your home up as collateral.
6. Credit Cards
If you’re making minor updates to your home, such as upgrading a bathroom vanity or installing a new closet system, using your credit card might be one of the best home improvement financing options.
Some cards are interest-free for the first few months. If you’re using a 0 percent introductory APR card, you could pay for minor home improvements without ever paying interest. Many cards also come with great rewards, so the more you spend on a renovation, the more cashback you could earn if your credit card offers cash-back perks.