How to pay for home improvements:
Whether you've been in your home for decades or just a
few months, sometimes it needs a little extra love.
to make home improvements —
whether massive overhauls or little fixes — isn’t always readily
available in your bank account. Luckily, you have a few different
options to pay for home renovations if your cash flow is running
Getting a personal loan is
a great option for mid-size projects on your home, such as a bathroom
makeover or window
Whether you’re hiring a professional contractor or doing the work
yourself, a personal loan can help offset some of the costs or pay
for the entire project.
Variety of different lenders: You
for a personal loan through
banks, credit unions and a number of different online lenders.
You have the chance to review the best personal loan lenders
that offer the lowest interest rates, smallest (or no) fees,
friendly repayment terms and a quick payout.
Unsecured loans: Personal
loans are unsecured loans, which means you don’t need to use
your house as collateral to qualify. Your interest rate and
qualification are based on your credit score.
Fast payment: Once
you agree to terms, many lenders deposit money straight into
your account in as little as a day.
Possibly high interest: Since
personal loans are based on your credit score, you may qualify
for a loan but it could cost you more in interest if your
creditworthiness is rated fair to poor. The lower your credit
score, the higher the interest rate you’ll pay.
More fees: Some
lenders charge fees for application processing, late payments
and even prepayments. When reviewing personal loan lenders, see
which ones charge fewer fees.
Home equity line of credit (HELOC)
A HELOC provides
an ongoing stream of money for you to use when you need it, up to
the limit you were approved for. The HELOC’s revolving line of
credit is similar to a credit card, except the “draw period” has an
end date, usually up to a decade. After that, any unpaid
money gets converted into
a fixed home loan.
Lower interest rate: Because
a HELOC is a secured loan — backed by your home — you can
qualify for lower interest rates than you would for an unsecured
Take what you need: Since
a HELOC is a stream of revolving credit, you can take what you
need, when you need it. For ongoing or lengthy home renovation
projects, a HELOC may be a good option.
Your home is collateral: Interest
rates are lower with HELOCs because you’re using your home to
secure the funds. But there’s a downside: If you don’t make
payments on time, your home could get foreclosed on.
You need home equity to get cash: In
order to borrow against your house, you must have sufficient
home equity, a term to describe a home with an appraised value
that’s more than what’s owed on the home.
Variable interest rates: Most
HELOCs have variable interest rates, which means your payments
can increase depending on market conditions.
Home equity loan
Instead of a HELOC, you can get a home
sometimes referred to as a second mortgage. This is a loan paid out
in a lump sum that you can repay over a number of years in regular
fixed monthly payments.
Fixed interest rate: You
don’t have to worry about market fluctuations; once you lock in
your fixed interest rate, you pay the same monthly payment over
the life of your loan.
Get what you need: If
you know exactly how much your project will cost, a home equity
loan might be perfect for your needs. You won’t have to worry
about taking out more than you need and paying interest on it.
Versatile needs: If
you need some extra cash to consolidate your debt or pay off
student loans, you can get a home equity loan.
You could lose your home: Missing
payments can significantly hurt you. Since this type of loan
also uses your home as collateral, your home could get
foreclosed on if you fall too far behind on payments.
Higher interest: You
might be faced with higher interest in home equity loans
compared with other options, like refinancing.
Refinancing your mortgage
your current mortgage with a new one and gives you a new interest
rate. You get to pocket the difference if the new loan is bigger
than the old one. You can use those extra dollars from a cash-out
refinance to make your home improvements.
Lower interest: If you’re
there’s been a drop in rates, you can secure a lower interest
rate than what you’re paying now.
Extra cash: While
most of the cash can go towards your home renovations, you may
have enough left over to pay down other debt or stash cash into
an emergency fund.
need to pay for an appraisal, origination fees, taxes and other
Longer payoff period: Unless
you refinance your mortgage for a shorter term, you’re going to
be extending the life of your loan. This means it will take you
longer to pay it off.
lower interest rate isn’t guaranteed: Refinancing
is only a good idea if you can secure a lower interest rate than
what you pay now. If not, it’s not really worth it.
If you’re making minor updates to your home, like upgrading a
bathroom vanity or installing a new closet system, you may consider using
your credit card.
Possibly interest-free: If
you’re using a 0 percent introductory APR card, you could pay
for minor home improvements without ever paying interest.
Earn cash back: The
more you spend on a renovation, the more cash back you can earn
if your credit card offers cash-back perks.
Really high interest: If
you can’t pay back your balance before the introductory offer
expires, you could face exceptionally high interest rates — much
higher than personal or home equity loans. And If you don’t use
an introductory offer card and use your regular card, you’ll
need to pay back the entire amount by your next pay period —
usually a month — if you want to avoid interest.
Variable interest: Not
only would you be paying high interest, but that amount could
rise as market conditions shift.
If you qualify for a government loan, you could save on the cost of
interest and insurance.
FHA Title 1: You
can borrow up to $25,000 without
having any equity in your home. This is a good option if you’ve
recently purchased your home and need to make some upgrades.
However, the money must go towards renovations that improve the
livability of the home, and some upgrades may not qualify.
VA cash-out refinance loan: This
type of loan will
guarantee 100 percent of the value of your home. In the event you
can’t make payments, the VA loan guaranty is the “insurance” that it
provides to your lender.
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