As any homeowner will attest, it's expensive to own a home. Not only is it the largest investment many make, homes present large ongoing expenses for which we must plan and fund. While not always a need, home renovations are a big part of those ongoing expenses. This begs the question of how to finance home renovations. A recent Harvard study reveals Americans will spend over $310 billion on home remodel projects in 2016 alone, so it's obviously a question many face. If you're wondering how to finance your home renovation, here are three options to keep in mind.
Home Equity Line of Credit (HELOC)
One possibility many consider is taking equity out of their home, assuming it makes financial sense to tap the equity for the given remodel.
The first option with regards to home equity is a Home Equity Line of Credit (HELOC). With a HELOC, you get access to the equity in your home as you need it. The mortgage lender informs you of the maximum amount you can take and you can take equity out as you see fit and you make minimum payments to repay the amount. This allows you to take out money as you need it and focus on the most pressing projects.
Home Equity Loan
The second option to access equity in your home is a home equity loan. While a HELOC allows you to access equity as you need it, a home equity loan provides funds in one lump sum. Such a loan may work best for you if you have a larger house remodel project you're working on and want a static interest rate. You can get home equity loan rates from local financial institutions or even find them online. Just keep in mind that you may lose your house if you are unable to repay the loan.
You may not want to put your home up as collateral for a home renovation, which is understandable. If you're looking at how to finance home renovations in some other way, an unsecured personal loan is one option to consider. With an unsecured personal loan you do not put up collateral, but you may need a higher credit score to get funds.
Personal loans typically have a shorter repayment period and a somewhat higher rate, but are cheaper than using options like credit cards or contractor financing – both of which can be expensive. You can get an unsecured loan through a local financial institution, or check rates on LendingTree for the best online lenders.
When you're considering how to finance home renovations, it pays to do your homework. Look at all the possibilities and find the option that makes the most financial sense. This process includes making sure your remodel will bring you a good return when you sell the house. When done the right way, financing a house remodel makes it possible to leverage debt for a larger payoff down the road.