Homeowners who are looking to improve their homes should understand that it can be an expensive project. Simply installing new windows can set you back $2,000 or more. However, this expense can be offset by a higher property value as well as lower heating and cooling bills. How would a homeowner find the funds necessary to finance their home improvement project?
- Home Equity Loan: If you have sufficient equity in your home, you may want to use that equity to fund your project. Home equity loans come with low interest rates that can be repaid over several years. The amount that you can borrow generally depends on the equity in your home and its overall value. Some lenders will allow you to borrow more money if you can sufficiently show that the project will in fact raise the value of your home. For example, you may have a home that is worth $100,000. However, you may be able to borrow money as if your home was worth $120,000 if you can show that a new kitchen would raise the value by $20,000. When considering home equity loan, beware of home equity loan scams.
- Cash Out Mortgages: A cash out mortgage is a little bit like a home equity loan. However, it involves signing a brandnew contract with your lender. There will be closing costs and other fees involved. Say your home is worth $100,000 and you have $20,000 worth of equity in that home. Your lender will write a new home loan for $100,000. You will then receive a check for $20,000. This allows you access to the cash that you need for your new project.
- Reverse Mortgages: Borrowers over the age of 62 may want to look into a reverse mortgage to fund their renovation projects. Reverse mortgages allow those who have significant equity in their homes to get that money in a series of monthly payments. The interest rates are relatively low and you should be able to retain ownership of your home.
- Refinance Your Mortgage: If you can’t get a refinance and renovation loan, simply refinancing your mortgage might help free up enough money each month to take on the extra home improvement costs. Locking in a lower interest rate is usually in your best interest even without a specific project in mind.
- Contractor Financing Plans: Many contractors will have private financing plans that you can have access to. These plans may have the best interest rates that your credit score will allow you to get. Some contractors may even offer you longer repayment terms or other flexible payment terms. This could potentially save you a lot of money while making it easier to get your project done as soon as possible.
Finding the money for your next home improvement project is easier than you think. You can refinance a mortgage, cash out equity or look into a reverse mortgage. If that fails, talk to your contractor about financing options that are available to you. When the project is finished, you will proud of the way that your house looks.
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