The home improvement industry is worth billions. And it’s no wonder why. Whether it’s a kitchen remodel, repainting project, or full reconstruction, everyone wants to live in the best house possible.
However, home improvements and renovations are expensive. The average home improvement project cost is between $17,000 and $68,000. If you don’t have this money on hand, you do have options.
Many homeowners take a home improvement loan for their renovation costs. But this isn’t your only option. If you’re looking for a home remodel project loan, here are the different options you have and what’s best for your financial situation.
Home Equity Line of Credit
Don’t like the idea of a loan? If your home has enough equity, you can take a home equity line of credit. A home equity line of credit, often shortened to HELOC, works like a credit card.
You borrow money against your home and use your home’s equity as collateral. You can borrow up to 80% of your home’s value.
Keep in mind, HELOC doesn’t contribute to paying off your mortgage. There is a draw period and a repayment period. The draw period is the period where you spend the money, which lasts about 10 years.
The repayment period is exactly how it sounds—you repay the credit line. Depending on how much you spend, this period can last about 15 years.
Home Equity Loan
If you still want to tap into your home’s equity but don’t want to use a HELOC, then you can settle for a home equity loan. Instead of receiving a line of credit, you receive a lump sum as you would with a traditional loan.
A benefit of this loan is it comes with a low-interest rate. However, a cash-out refinance comes with an even lower interest rate. Fortunately, a home equity loan doesn’t have as much risk as other financing options.
Many homeowners refinance their mortgage because it lowers your interest rate and lowers your monthly payments. While the refinance itself won’t pay for your renovations, you can use the extra money toward renovations.
As an alternative, you can opt for a cash-out refinance. This is similar to HELOC because you’re tapping into some of your home’s equity. Unlike HELOC, a cash-out refinance goes toward paying off your mortgage.
You can borrow against 80% of your home’s value.
This option comes with a lot of risks. You’re using your whole home as collateral. In addition, you risk long-term debt. Not paying off the loan can result in even higher interest rates and fees.
When is this option worth it? Only use it if you’re investing in renovations that improve the home’s quality. That way, you can get your money’s worth and more when/if you sell your home.
If you would rather not use your home or its equity as collateral, you can take out a good ol’ fashioned personal loan.
Personal loans come with many perks. You can get a loan for as high as $50,000. Depending on your credit score, you may not even need collateral.
The only downside to these loans is the interest rate.
They’re usually higher than taking a cash-out refinance or HELOC, making them harder to pay back. You’ll also need to pay back the loan in a shorter time frame, even with a good credit score.
If you want another lending option without putting up your home as collateral, you can also take out a payday loan.
These loans only cover as much as your next paycheck, so you can’t take out a lot. But if you only need small repairs or other small renovations to increase your home’s worth, then a payday loan is a good option.
Payday loans are also good for those with bad credit. Sources such as Bonsai Finance offer payday loans without a credit check and can look at other sources, like proof of income, in order to qualify.
If your credit is good enough, you can get a credit card with a spending limit of up to $10,000. Many credit cards also offer rewards, such as cash back and zero interest for a year.
Keep in mind, you’ll want to pay off the credit card quick. The interest rates can rise quicker than you would expect.
Save Money or Consider Crowdfunding
While you won’t be able to do all renovations in a quick amount of time, you don’t have to worry about paying extra interest, decreasing your credit score, going into debt, and putting your home as collateral.
Saving money is also easier to stay within your budget.
If saving money is impossible, consider crowdfunding. Ask friends and family for help. This approach may be better if you’re home is in a crisis, such as your plumbing stopped working and you can’t afford a plumber.
What’s Worth It?
Before taking out any of these financing options and even before using your dollars toward a renovation, ask yourself what’s worth it.
First, is a home improvement project worth it at all? The only time it truly is worth it is if the remodel will benefit your home’s value or if there’s an issue with your home’s foundation.
If you’re just remodeling for aesthetic reasons, step back and think if you should truly use your money toward these purchases.
If remodeling is worth it, then find ways to save money on your remodeling project. Negotiate with contractors, do a project DIY and ask a friend to help, or start renting out a room to help decrease some of your mortgage costs.
A Home Remodel Project Loan: You Have Many Options
If you plan on renovating your home, a home remodel project loan can help you finance your project. Go over these options and choose the best one for your finances and your situation.
For home remodel ideas, visit our blog!