As a homeowner, there are some home improvements that you'll want to do over the years. To ensure that you can afford these improvements, you'll need to line up some level of financing unless you have cash up front to pay for the whole renovation. Today, we're going to share with you some feasible options that you can use to finance the improvements to your home.
HELOC
A HELOC, also known as a home equity line of credit, is a very popular financing term that has been gaining traction over the years. The idea is that you can pull out the equity that you have invested in your home. Let's say you have a home that is worth 100,000 dollars. The mortgage amount that is owed on the home is 40,000 dollars. In this scenario, you have 60,000 dollars or 60 percent equity in your home. A typical lender will allow you to withdraw your equity up to 80 percent of the value of the home less the mortgage amount. So, in this case, the lender will allow 80,000 dollars minus the 40,000 dollar mortgage. That's 40,000 dollars that you can pull out in equity for your home to do renovations.
Solar Funding
If any of your home improvements are involving solar energy, you can opt for solar funding. This can be achieved in various ways depending on the solar retailer that you go through. Solar financing has many options, including solar lease, loans, and PACE programs. With solar leases, you pay a lease fee to have solar panels installed. Each month you simply pay for the amount of solar electricity that you use. The EPA and Fannie Mae offer multiple solar loan options that can help to finance the cost of solar equipment over time. PACE programs are where a financing scenario is enacted between a specific city and the homeowner where the property owner pays higher taxes in exchange for the city fronting the bill for the solar equipment.
Personal Loan
A personal loan can be a great option to finance home upgrades when you don't have a lot of equity built up in your home. Expect personal loan rates to be higher depending on the lender that you use. Many of these loans can be set up for terms of three to five years. When you speak with your local lenders, you may find that some offer home improvement personal loans at a lower rate than traditional personal loans. This type of funding is traditionally available for those with good to excellent credit.
Contractor Loans
It's very common these days to find contractors who work with existing lenders to get you the funding you need for your home improvement projects. Many times, going through your contractor can allow for cheaper interest rates than other options such as a personal loan. Depending on who your contractor is, you may find loan terms available from as short as 3 years to as much as 15 years. Some contractors will even add in the option of interest-free loans for the first year or two. This can help you to save significantly compared to other interest-bearing financing options. Typically, the more widespread the contractor, the more likelihood of financing that will be available for home improvement projects. Using smaller contractors may make it hard to find ones which offer this type of contractor loan.
Paying for home improvements is something that you're going to have to consider if you don't have cash stockpiled to handle the repairs. Depending on the type of project your doing and the contractor that you're working with, there are many feasible options for financing that you can consider. We encourage you to take some time to weigh the pros and cons of each available financing option before deciding on the one that you use for your next home renovation project.
