Whether you are just beginning your career as a landlord or you have been living in your home for years, it can be both baffling and exhilarating to think of customizing a house to suit your preferences, needs and style.
The exhilarating part comes without any questions, but the baffling factors usually come when thinking about the costs of the renovation. Regardless of how small or how big your home renovation may be, you will still be troubled on finding where to get the funds to make it happen.
Today, we all know that nothing comes free anymore. But the good news is there are a lot of options you can choose from to finance your home renovation. Choosing the right way will totally depend on your unique situation and financial state. It means that you might be borrowing more money than you think.
Let’s look at some of these ways which might help you fund the home you have always dreamed of:
Apply for a Personal or Unsecured Loan
When you are planning to have medium-sized renovations at your home such as roof repairs, adding an additional bathroom or an energy-efficient insulation, applying for a personal or unsecured loan is recommended.
A personal or unsecured loan can provide you funds between $16,000 and $60,000. Most banks, credit unions and peer to peer lending companies offer unsecured financing loans. Its main advantage for borrowers is that it offers low-risk solutions when compared to other loans which usually require collateral.
Additionally, you can also expect that your loan will be approved quicker compared to secured loans. Banks that offer secured loans usually require validations of the collateral which takes a lot of time to get processed. However, unsecured loans typically come with higher interest rates because of the additional risk for financial organizations.
Customers with good credit scores and high income are offered better interest rates at 7% to 9%. Those who do not meet the required credit score or have a bad credit history must expect that their applications will be rejected.
The best benefit from having an unsecured loan include a longer repayment time, lower interest rates compared to other credit cards and there are no processing fees to be paid but there your will not receive tax benefits.
Take Out a Home Equity Line of Credit (HELOC)
If you have a low rate on your first mortgage or you have already fully paid your loan, refinancing does not make sense for you. Getting a HELOC is a choice you can make to be able to use your equity to pay for a home improvement without refinancing.
It functions like a credit card that has a ceiling you can borrow, then they charge a little interest on only the amount used. But, since the loan is tied to your home, you will get a lower interest rate compared to a credit card.
HELOCs are usually adjustable rate loans that allow for advanced fixed-rate options so that you can enjoy the stability of a rate. Most HELOCs require repayments after 5 to 10 years. One of the main advantages of using a HELOC is that the interest rate on a HELOC can be deductible for up to $300,000. But with the recently passed tax law, HELOCs with no interest rates now come with restrictions.
A risk when using a HELOC is that you might be tempted to overspend especially if your lender has provided you with a high ceiling. This easy access of money makes it easier to use funds more than you need for your home improvement. You might even be tempted to use the extra money for additional expenses like buying a car or paying for your kid’s tuition fee. This significantly increases your debt and could cause chaos to your credit score if you are not careful.
Get a Home Equity Loan
A home equity loan is another choice for mortgagees to consider if they are willing to use their equity to pay for home improvements without refinancing their whole mortgages. Unlike a HELOC, a home equity loan demands you to take out all the cash you need in one time.
Aside from getting the entire loan upfront, you can schedule payments and pay it off over a period of 10 to 20 years. But since this is a fixed rate loan, the interest rate for a home equity loan is usually higher compared to a HELOC’s adjustable rate. This kind of loan is also called second mortgages since most homeowners use them in addition to a first mortgage. But, remember that you don’t need a first mortgage in order to get a home equity loan.
Earn More Cash
Although it is not ideal for most of us, having a side line in addition to your full time work could help you save funds a bit more. There are a lot of ways you can earn more money. If you have an extra room in your home, having it rented by a friend or a traveler a few times in a month can help you earn that extra cash.
If you have an extra parking space in your driveway, people may be willing to pay for parking if you live in a congested area. You can also get a side job in addition to your day job. Be creative and think of other ways you can earn money.
Although it can take some time, earning and saving extra money is still one of the best ways people can fund for home renovations. Try and cut expenses or spend less cash on luxuries and keep that money to add in your home renovation budget. If you want to save more money, look at some of your expenses and see where you can cut back.
If your home renovation is more like a passion to you, you might need to find alternatives to taking on debt. But if your house really needs a much needed repair, a solid repayment plan and the right home improvement loan could be the perfect solution to finding the funds you need.