Have you decided to start a home renovation? How are you going to finance that? Are you going to finance on your own or do you want to apply for a home improvement loan? Depending on your own situation and the size of the necessary renovation, you can find different possible funding options. United Field Services, Inc. wants to present some of the most common ones for your attention.
Refinance your home loan
Another option to start a renovation without taking an additional loan is reviewing your current home loan and checking whether refinancing the mortgage will suit your needs. In other words, you can leverage the equity of your home and involve additional resources for home improvement. This will be calculated by comparing the value of the assets you own and the amount of your current mortgage.
An important thing to consider is that there might be some hidden fees, including the ones for appraisal, taxes, fees for origination, or other related costs. Additionally, if you are interested in taking a long-term loan, the life of your loan will be extended and you will need to pay off for a longer period. However, this option might be beneficial if you can negotiate a lower interest rate compared to your initial one.
Take out a personal loan
If you do not want to connect your renovation loan with the home value, taking a personal loan might be the best option, especially for small-scaled renovations as they are typically provided up to around $50,000 and are offered in the secured or unsecured forms. This type of loan is more convenient, as it mostly has lower interest rates and if you choose an unsecured loan, you will not be required to provide collateral. The interest rate will mostly depend on the agreed terms, the specific product, and the credit history you have up to now.
Home equity line of credit (HELOC)
The home equity line of credits (HELOC) is very common for financing home improvements. HELOC is a secured loan, which is not provided as a lump sum, instead, you can withdraw necessary funds from the line of credit several times. The latter means that you will have to pay the interest-only for the portion of the HELOC that you have already used. Based on the fact that your home is provided as collateral for the loan, the interest rates are usually lower than the ones for personal unsecured loans. HELOCs are mainly suggested with a 10-year period for withdrawal and 20-year for repayment.
Home equity loan
Compared to the HELOC, the home equity loan is mostly known as a second mortgage and is provided as a lump sum. The loan is repaid for the defined number of years in the fixed monthly payment, which makes you secured from the market fluctuations. This is a comfortable option if you are sure about the total amount necessary for you. However, if you have additional expenses it might become a problem as for this type of loan, given that your home is again used as collateral.
If the size of the renovation is planned to be on a large-scale, such as knocking down and rebuilding your home, another possible option to be considered is the construction loan. This type of loan mainly depends on the estimated value of the house after the renovation, which gives you an opportunity to cash out the necessary amount of budget for renovation-related payments.
If you are ready to start the home improvement process, as we have presented, you have multiple available options, starting from using your own savings to HELOCs, home equity loans, or construction loans. In case the renovation is small and is based on regular expenses, you can consider also using a credit card or overdraft option. Before using this option, you should note that these types of loans have higher interest rates and additional fees than others.
You can also look at interest-free loans or grants for specific renovations that might be suggested in your area, for instance, there are certain incentives in some states offered to owners adding solar panels to their houses.
How to apply for a home improvement loan
- Apply before you need to start improvements.
- Determine how much you need.
- Determine your preferred loan term.
- Get prequalified.
- Consider your eligibility.
Paying from your own pocket
In case you prefer to avoid taking new loans, you may finance the renovation from your savings or other funds you are able to access. This option appears to be easier and less risky than lending a loan if you have enough money to cover all of the home improvement costs.
Using your own finance means you can start your house renovation without worrying about extra expenses afterward. Nevertheless, you need to consider the planning of your savings carefully. You need to check that after the withdrawal of the necessary amount for the renovation from your savings, you still have some emergency money sufficient for unforeseen expenses.