Thursday, 15 November 2018
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This Old House - Do-it-Yourself

How to Finance a Successful Home Improvement Project

Written by Posted On Tuesday, 12 December 2017 20:12

Renovating a house would often need a huge budget as it can be pricey. This is how it works – As compared to building a new one, renovation doubles the amount as the contractor has to remove the existing layout to create a new one.

Take for example remodeling a bathroom, average spending is likely at $9,000, with low end at approximately $2,500 and the extravagant one to cost up to $23,500.

But of course, renovations beautifies your home so it is worth every buck. Do not stress yourself, here are the ways on how you can finance your home improvement projects and incorporate your home interior decorating ideas: 

Get a Home Equity Loan

There’s a huge difference between a home equity loan and home equity line. While the former usually has fixed interest rates and a lump sum single loan, the latter is a more complex type similar to a credit card where the amount varies depending on your need at the moment. It is a revolving credit line with variable interest rates, and usually active for a long period of time until its expiry.

A home equity loan can be availed to finance your home improvements. If you already have an existing loan, a second home equity home loan isn’t a bad choice for funding as it does not necessarily have to refinance your existing loan especially if the rates offered are more competitive.

Just make sure to check on the interest rates as financing companies might offer lower rates in refinancing rather than availing a new home loan.

Refinance Your Mortgage

Having doubts if you can be granted for another loan if you already have an existing one? No problem, home mortgage refinancing can work for you. You can simply roll-over your outstanding loan balance and add the amount you need for the renovation through this loan scheme.

The lender will use your property appraisal in deciding the new loan amount they can grant you. Some experts do not suggest financing the whole home improvement costs, and some lenders have standard rules on this. But if the appraisal is high and the loan has been amortizing for quite some time, you may even be granted the same amount as your first mortgage, but the actual cash you can get is the difference between the approved loan and the outstanding balance of your existing one.  

 

Refinancing can actually give you a couple advantages depending on the situation, some of which are:

  • If your existing loan is under a variable interest and the rates are very low at the time you want to refinance, you may opt to fixed the rate to lock-in the low rates.
  • You can extend the term of your existing cash loans since once it is refinanced, the old terms will be terminated and the new one will apply.

 

Some tips – scout on the best refinancing offers among two or three lenders starting off on where your loan is currently booked. Compare notes to get the best offer that gives you lower interest rates and monthly payments. Be careful on possible hidden charges that might lead to higher monthly amortizations.

 

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Contractor Loans

Some established big real estate contractors do offer cash loans to their clients under their own terms and agreements.

You may take advantage of this contractor loans but study carefully the payment terms especially the interest rates they will offer. Get ready for possible higher interest rates versus other financing companies who already mastered the lending business. Ensure that you pay the right amount as to the extent of the project done.

Apply for Personal Loan

If you want a collateral free loan with faster processing and the amount you need will just to bridge finance your gap, then a personal loan is right for you.

The interest rates might be high because of the risks obtained by the lender by granting an unsecured loan, at least enjoy the fixed repayment and best personal loan interest rates in this kind of term loan as compared to a HELOC or even credit cards.

 

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Save and Pay Cash

Lastly, what a better option to finance your home renovation and improvement by using your own savings.

 

As Fleming quoted, “Its always more financially sensible to wait until you can pay cash”. At least, you need not worry about interests and running to the bank to pay your monthly amortizations. Moreover, you spare your property for any loan encumbrances.

 

You don't need to hurry to finish all your home renovations. You may do it gradually or by every phase of your house. Save a new fund and proceed to the other phase.

 

The most important thing is, you slowly see the beautiful results on how you want your renovated home to look like.

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