Buying and moving into a new home is one of life’s great experiences, especially if you’re buying your first home. From getting that pre-approval to the “yes!” response on an offer to closing and moving in, every step is exciting. And while the process is engaging and fun, it’s important to prepare for moving day […]
3 Tips For Financing Your Next Home Remodel
Remodeling your home is a great way to potentially increase its value and get the home you have always wanted. From updating the kitchen, finishing the basement, and opening up the living room, remodels
When it comes to financing your home remodel, you may find yourself at an impasse. Do you save up the money over time or find a loan? Here are three tips for financing your next home remodel.
Set A Budget & Stick To It
Before you dive into your home remodel, set a budget a stick to it. How much can you reasonably afford? What projects do you want to do? Make a list of remodels in order from highest priority to lowest. Then, research prices in your area.
It is always recommended to save up money for any project that you want to do, big or small. This will prevent you from taking out loans you cannot afford and stop you from going over budget.
Avoid Using A Credit Card When You Can
Credit cards are easy to use but can get out of control quickly. If you are using a credit card, use it for smaller purchases like new paint and cabinet hardware. Using your credit card for remodels that are thousands of dollars can result in high interest costs when it is not paid off before the next billing cycle.
Look At Financing Options From Your Bank
For larger purchases, look at financing options from your bank. When using these options, remember that your home is often being used as collateral and the money you receive is not free money.
You can use a cash-out refinance to fund your home remodel. In this instance, you are refinancing your mortgage for more than what you owe and then pocketing the difference. You can use this money for your home remodel. Just remember that this option will result in higher monthly payments and interest rates.
Home Equity Line Of Credit
Taking out a home equity line of credit (HELOC) is much like a credit card in that it is a revolving loan and you can borrow the amount you need for your renovation up to your loan limit. This option is the most used option for financing major home remodels and renovations. You can use what you need when you need it.
To take advantage of a HELOC you must have good credit and enough equity built up in your home. The interest rates for HELOCs are variable, so they will fluctuate each month.
Home Equity Loans
If you know how much you need to finance your remodel, you do have the option of choosing a home equity loan. Also known as a second mortgage, this loan uses your home as collateral and you have a set amount of money to work with. Remember do not use up all of your home’s equity! If you do, you will have difficulty rebuilding it if home values in your area drop.
A home equity loan’s interest rates are fixed. Both home equity loans and HELOCs come with fees and closing costs.