Whether you have decided on working with one of the Big Box Retail giants, like Lowes or Home Depot, a local contractor, a close friend who is a jack of all trades or a construction company on your future home renovation project, the undertaking of the decision to move forward with a home renovation may be one half of the battle, but paying for it is another. Regardless of what the condition is of your current project, and the pictures of what it could be, the final cost will sway you into 2 categories of “need vs. want”. For the sake of keeping this post simple, you have chosen to move forward regardless. With that said, you have options when it comes to getting what you want, even if it is your dream kitchen, your fantasy master bathroom, etc.
Do not immediately get discourage or concerned about wanting a home renovation that you feel is over your budget because of the dollar amount on contract. Yes, cash is King, but financing your home improvement project is Queen. A homeowner has options, and all those options should be considered. If you have the luxury of paying for a home renovation out of pocket, that is fantastic. Using your last cent in savings or a good chunk of it may not be. Before you pull that trigger, please consult with your financial advisor on the ramifications. In the meantime let us take a glance at 4 ways to finance your home improvement project. These 4 ways should help you in determining your purchasing power, and you can do this on your own without any assistance. Be your own financial advisor, and uncover the facts that best suits you in whichever direction you deem comfortable.
1. Title 1 Home Improvement Loans: U.S. Department of Housing and Urban Development, aka HUD provides private lenders with insurance to extend financing for up to $25,000.00 for home improvement for a term of 20 years. There are restrictions to what would be okay to finance, luxury items like a swimming pool or hot tub do not qualify. These loans are not equity driven, but they are credit, and a homeowner must show their ability to pay. Loans on single family homes may be used for alterations, repairs and for site improvements. Loans on multifamily structures may be used only for building alteration and repairs. A homeowner can inquire on their own with any bank, mortgage company, savings and loan association, and credit union, that is approved as a Title 1 Lender. Just walk into your bank as an example, and ask them if they are approved to issue Title 1 Loans.
2. Contractor Loans: Some construction companies do offer financing options, they are state, and county specific with their own restrictions. The financing partners are lenders, and not the contractor’s own funds. There are several programs available, like a no interest loan for a fixed period or a very low rate for a promotional period, the terms vary, as do the rates. Whether a no interest loan or a competitive promotion term, get the facts on what the rate will be at expiration. Perhaps you are planning on selling the property, and need to lowest payment or no payment while you get your home ready. Regardless of what your plan is be informed, and do not sign anything that is not in fine print.
3. Personal Loans: A better alternative to using your credit card. The rate will be a lot more competitive than what the credit card issuers will offer you, and they are fixed (not variable). The only drawback is finding an institution that still offers these unsecured loans. They are not equity driven, and the lenders that offer them have a higher standard in credit qualifying in-lieu of the risks. Again, be informed and read the fine print. Take into account the monthly payment, and all your other expenses.
4. Home Equity Line of Credit: Considered the best option in financing due to the lowest rate available. These loans are offered by most lenders, they are variable and equity driven. In taking out a HELOC you are borrowing against the equity of your home. Most lenders who offer these loans have reduced their Loan to Value limits, so qualifying can be a challenge when it comes to market conditions in your community. These loans are considered the best alternative in comparison to most financing options. When inquiring about these loans, a licensed loan officer at a local branch will be able to tell you if you qualify. Most lenders have automated access to valuation of properties, so even if you are not sure about the value in your area, the lender may have the tools to assist you.