Homes must be maintained, which requires money. Most people don’t just have money hanging around waiting to be spent on home improvements. A lack of funds usually means that home improvement projects have to be financed with a loan or another financing option. This is where a home improvement loan may come in. However, you want to have financing options so you can find the best loan that will keep you from paying too much for too long on a single home improvement project.
Also, keep in mind that these improvements add to the value of your home. This means that the $9,000 bathroom remodel or $20,000 kitchen remodel is going to pay for itself if you ever choose to sell your home. Doing these remodels comes down to finding the right financing option for you.
Coming Up With Cash for Home Improvements
The amount of money needed for the remodel can be discouraging, but don’t let it be. Here are ways you can finance your home improvement project:
1. Personal Loans
A personal loan doesn’t have any tax advantages, but it can be good if you don’t want to use home equity or use your home as collateral. You simply need good to excellent credit to obtain personal loan rates that could make this decision worthwhile. Personal loans are short-term loans with repayment periods of anywhere between five and seven years. This could mean paying less money in the long term, despite the higher interest. A number of companies like Discover and Avant allow you to apply online.
To check out some of the best personal loans for home improvement, use our filterable tool below. Simply enter your estimated credit score, annual income, and loan amount to see your best options.
2. Home Equity Line of Credit (HELOC)
Taking out a home equity line of credit is another financing method of borrowing against the home’s value. The original mortgage isn’t paid off, but you can borrow up to 80% of the home’s value minus the amount owed on the mortgage. There is typically a “draw period” of approximately 10 years, which is the time you have to use the credit line. The repayment period lasts approximately 15 years with payments going toward the interest and then the principal. Fortunately, a HELOC has some tax advantages. You can see this article to compare personal loans and HELOCs for home improvements.
3. A Second Mortgage
A home equity loan is referred to as a second mortgage. You don’t get a HELOC, but you are paid a lump sum of cash. If you are happy with your first mortgage and don’t want to refinance, this financing option may be the way to go. The interest rate may be a little higher than it would be if you simply refinanced your mortgage.
4. Use Existing Credit Cards
If you have credit cards, especially cards with high limits, you could finance your home improvement project. However, this option should be for smaller projects that you can pay off quickly. Credit card debt that hangs around too long is one of the biggest killers of credit scores. You never want to really carry a large balance on a credit card for a prolonged period. It’s ideal to pay off your credit card balances each month. If the project is one that you could pay off in a month, then this may be a good option for you.
5. Refinance Your Mortgage
If you have a mortgage and the rate is higher than the current market rates, you can refinance the mortgage to lower the rate and borrow against the equity. This is called cash-out refinance. A lender will let you borrow enough money to pay off the current mortgage and take out an amount up to 80% of the home’s value to fund your remodel. Make sure you are careful in this decision because you are using your home as collateral for a larger loan. Remodel costs are also short-term costs, but you are taking on a long-term debt. Nonetheless, this is a common way to finance a home improvement project; in fact, it has been used before to offer a solution to paying student loans.
Making Your Home Your Dream Home
Overall, you have some great financing options for your home in 2018. Aside from simply saving the money, the above options can have you working on your project in no time. Using any of the different funding options can also allow you to do what you want rather than holding back on making your home your dream home.
*Payment example: Monthly payments for a $10,000 loan at 9.34% APR with a term of 3 years would result in 36 monthly payments of $319.58. LightStream disclosures here.
My home is paid off. I am a union operating engineer that is payed off at the moment. I only have time to do home improvements when laid off. How do I get a home improvement Loan while not at work ?
Hey Nathan,
Thank you for the comment! Below is an article that can help you decide if you need a cosigner before applying:
https://lendedu.com/blog/personal-loans-with-co-applicant
Recently I loaned money from a bank in the front of my home and the reason is to loan that I want to renovate my house for some days. These Home Improvement Loans & Financing Options are great and best in this year with effectively.