They’re practically everywhere. Whether you’re flipping through television channels, browsing online, or thumbing through a magazine, you’re liable to encounter home renovation TV shows and advertisements that tempt you to give home renovation a try. Wondering how to finance a home renovation? You’re certainly not alone. Fortunately, there are plenty of possibilities.
How to Finance a Home Renovation
When deciding how to finance a home renovation, you’ll want to consider the size of your project, its cost, and how quickly you expect to pay it off. Obviously, it’s also important to keep your overall financial situation in mind. What options can you use to finance your renovation?
Cash-Out Refinance Loan
If you’ve been in your home for a while and have managed to build up a fair amount of equity, you may want to use some of that value to fund your renovations. As U.S. News & World Report explains, a cash-out refinance loan pays off your old mortgage, allows you to turn some of your existing home equity into cash, and replaces your previous home loan with a new mortgage with new terms. This form of financing can be especially appealing if you manage to snag a lower interest rate and a lower monthly payment when you refinance. However, unless you opt for a loan with a shorter term, this approach does tend to mean that you’ll be paying a mortgage longer because you’ll basically be starting over with a new loan.
Renovation Loan
Renovation loans are designed to help borrowers get the funds that they need for their home purchase or loan and their renovations in a single loan product. The details depend on the loan, so you’ll want to review your options carefully before taking the plunge. There are several renovation loans to choose from:
- The EZ “C”onventional Repair Escrow loan
- The HomeStyle Renovation loan
- The FHA 203(k) Standard loan
- The FHA 203(k) Limited loan
- Energy-efficient loans
Home Equity Line of Credit
A home equity line of credit offers another way to tap into your home equity. As Consumer Reports indicates, it’s a revolving line of credit. With this form of financing, you can draw out the money as you need it. Initially, you’ll be required to make payments to cover the interest owed. After the draw period closes, the HELOC typically converts to a fixed loan, and you’ll be responsible for payments that include both interest and principal on a regular basis.
Home Equity Loan
What if you like the idea of borrowing against your home equity, but you’d prefer to get your funds for renovating in a lump sum? In that case, a home equity loan might be the ideal solution. As the Federal Trade Commission explains, a home equity loan is a loan that is secured by your share of ownership in your home. In return for your promise to repay the loan in regular monthly payments, you can receive up to 85 percent of the value of your home equity. However, if you fail to repay the loan, you risk foreclosure.
Personal Loan
Personal loans are short-term, unsecured loans. As NerdWallet notes, that means that they’ll likely come with higher interest rates than secured loans like mortgages, renovation loans, or home equity loans. However, using one doesn’t tie the debt to your home, so you won’t have to worry about missed payments triggering a foreclosure.
Credit Cards
According to DoughRoller, credit cards are best saved for projects that are relatively inexpensive. After all, the interest rate for this form of financing tends to be substantially higher than all the rest, so you’ll only want to use it for projects that you plan to pay off fairly quickly. However, credit cards are easy to use, and you may be able to take advantage of special offers that allow you to avoid paying interest on your purchases. As long as you’re careful, they can be an effective way to check off small jobs.
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Are you ready to explore how to finance a home renovation? Whether you’re leaning toward a cash-out refinance, curious about renovation loans, or wondering where to start, the team at PrimeLending West Texas can help. Contact us today.