If you are planning on renovating your home, you need to be prepared to spend a significant amount of money. Home improvements are costly and require you to have a financial plan in order to successfully finish the project.
There are many financing options, ranging from online lenders to bank loans and so on. If you do enough research you will be able to find private lenders that offer loans for the sole purpose of home renovation. FinImpact has reviews of different online lenders, so you can start your research there.
In this article, we will take a look at three ways you can get enough money for your home renovations. So, let’s get started!
Savings is the best option
It is highly recommended that you put aside a sizable amount of money specifically for the purpose of financing your home renovation. Nevertheless, if you do not currently have the necessary funds, you might want to consider delaying the project until you have accumulated enough money to start your project.
The nature and the size of the renovation project will determine the amount of money that you should set aside for it. If you want to make sure that you don’t go over your spending limit, it might be a good idea to begin with less expensive and more manageable projects before moving on to the larger ones.
If you decide to go with savings as your financing method, you won’t have to worry about the strain of having to repay a loan or a sizable credit card debt once the renovations are finished.
The use of a credit card could be an appropriate method of financing for less significant home improvement projects, such as installing a new closet system or upgrading a bathroom vanity. These kinds of projects fall into the category of minor home improvements.
Because interest-free periods offered by some credit cards typically last for a few months, this allows you to make simple home improvements without having to worry about accruing interest charges. In addition, some credit cards come with cash-back rewards, which enables you to earn additional money regardless of how much you spend on home improvements.
Drawbacks of using credit cards
There are a few drawbacks associated with paying for significant home improvements with a credit card. If you are unable to repay the balance before the introductory period expires, you may be subject to high-interest rates that are higher than the options available to you through other home improvement loans.
If you use a standard credit card rather than one that comes with an introductory offer, you will be responsible for paying off the entire balance before the end of the next billing cycle, which is typically within one month. In addition, variable interest rates present the possibility that the market conditions will cause your interest payments to rise.
Credit line secured by the equity of the home
A home equity line of credit, also known as HELOC, is a type of secured loan that is backed by the equity in your home. Since it is secured by your home, you may be eligible for interest rates that are lower than those associated with unsecured personal loans.
With HELOC you have the ability to withdraw funds up to your borrowing limit whenever it is necessary. Because of this, it is an excellent choice for undertaking longer and more involved projects.
Drawbacks of using HELOC
On the other hand, because your house is used as collateral for the HELOC, you run the risk of losing it if you are unable to keep up with the payments when they are due. HELOCs typically come with variable interest rates that can change based on the conditions of the market, which can result in an increase in the amount that you are required to pay back each month.
Furthermore, to be eligible for a loan secured by your home, you need to have a sufficient amount of equity, which should be between 15% and 20%. Before you take out a loan, it is essential to figure out how much your monthly payments will be.
Using your savings is the best method since you will avoid any short-term or long-term financial burden. However, if savings are out of the question, you can use credit cards for small home improvements and HELOC for big projects that cost a lot of money.