6 Ways Homeowners Can Pay for Home Improvements

Home improvement upgrades can be costly. You may be putting off installing a new deck or starting a kitchen remodel because home renovations can be so expensive. Once the renovation plans are in motion, costs can quickly rack up to thousands of dollars. So, what can you do to help finance those projects around the house?

From home improvement loans to refinancing mortgages, most people have quite a few options. Keep reading to know which one is best for you.

Cash-out refinance

A cash-out refinance is one way to put your home equity to work. Basically, you’ll secure a new higher mortgage that repays the old one and the difference is paid to you in cash. Cash-out refinances may offer an additional benefit if you’re able to access a better interest rate than your original mortgage. Cash-out refinances give you a lump sum payment but remember that you won’t be able to receive more than 80% of your home’s value.

Try a home improvement loan

With lump sum payouts and fixed interest rates, home improvement loans may be a good option for anyone seeking to avoid refinancing. Unsecured home improvement loans are approved based on the applicant’s creditworthiness and they don’t require collateral. So, you don’t need to worry about home equity or home appraisal costs. These loans may also have a quicker approval process which makes them one option for funding urgent repairs.

Dip into your savings

If your renovation project is small, it may be worthwhile to skip borrowing altogether and access funds you may already have. Not only will this spare you the trouble of loan paperwork and interest repayment, using cash may also push you to be more conservative with your renovations so you focus on essential changes now and save cosmetic changes for later. Unless the renovations are both urgent and highly essential, avoid reaching for your emergency fund.

Get a home equity line of credit

A home equity line of credit or HELOC is a secured line of credit that allows you to borrow cash based on your home’s value. Since you are borrowing against your equity, your house acts as collateral for the lender.

HELOCs can help fund bigger renovation projects like a kitchen remodel. Since this is an open line of credit, it may be helpful when unexpected expenses crop up in your renovation. Just keep in mind, they may have variable interest rates, which means your monthly payments might fluctuate based on market conditions.

Find a home equity loan

Like a HELOC, a home equity loan allows you to borrow against the value of your house. But since this is more like a second mortgage, you’ll receive a lump sum payment and your interest rate remains fixed. Since this is a secured loan, you can expect a relatively lower rate of interest. The downside of both HELOCs and home equity loans is that you may have to pay closing costs, which are an additional expense.

Crowdsource your renovation

If your goal is to save up for a renovation, then it makes sense to find additional ways to fund the project. If you’re getting married, you can request friends and family to make a small contribution to your renovation fund instead of having a registry. The same goes for birthdays and other celebrations where attendees would normally bring gifts. Cash gifts may not pay for a new deck, but they can certainly boost your savings and help you meet your goals.

The bottom line

If you’re debt savvy and have a good credit score, a home improvement loan may be a convenient and quick option for you. On the other hand, if you’re willing to pay closing costs in favor of securing a lower interest rate, then cash out refinancing, a HELOC or a home equity loan may be right for you.

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