Have you ever watched those TV shows where random people are surprised by a celebrity with a free home makeover? Seems fun, right? Too bad that it usually doesn’t happen for the average American.
Did you know that 61% of American homeowners took on home improvement projects in 2020? The global pandemic has made staying and working from home the new norm hence the upsurge in home improvement.
This is where home funding comes in. Home improvement costs money, and you’ll have to develop creative ways to finance these projects. Let’s have a look at some of the financing options at your disposal.
1. Home Equity Loans
A home equity loan allows someone to borrow money with their home as collateral. The loan amount disbursed will be determined by the value of the house. An appraiser from the lending institution determines the property’s value.
Home equity loans are disbursed as a lump sum and paid off in fixed monthly installments with low interest rates. The interest can be deducted from taxable income.
You are at liberty to use the loan any way you like. They are usually larger infusions of cash and are more appropriate for more expensive projects.
Unfortunately, you won’t get a home equity loan if you have bad credit. You will also have two mortgages once you take a home equity loan.
2. Cash Payments
Are you a big-time musician, movie star, superstar athlete, or Pablo Escobar’s protégé? Just kidding on the last one. In all seriousness, if your earnings allow you to save up enough cash for a home renovation, by all means, go for it.
Given the current economic situation globally, it is advisable to hold on to your cash for a rainy day. However, if you have a steady source of income and can afford it, this is a good idea because there are no monthly loan payments or interest to pay, making it the cheapest option. You also don’t have to put any assets at risk.
3. Cash-Out Refinancing
This is whereby an existing mortgage is replaced with a new one, but for a larger amount. The difference between the old and new mortgage is what is used for financing.
It’s advisable to try and get a lower interest rate than the previous mortgage. This makes the payout higher. The loan amount is usually 80% of the value of the home.
If your home was initially bought when mortgage rates were high, you could get a lower interest rate. However, there are several fees such as appraisals, title searches, and closing costs.
This is a good option for someone who wants to stay in their home for many years, which helps them recoup the costs.
4. Personal Loans
Personal loans are for people with good credit and are suitable for the larger budget home improvement expenses. You can take a secured loan or an unsecured loan, depending on your preference and ability.
Secured Loans require collateral for a loan before approval. This is not suitable for individuals who don’t have assets.
Unsecured loans do not require collateral. They are given to salaried individuals, and the loan amount is determined by the lender’s ability to pay based on an assessor reviewing their earnings and monthly spending habits.
They usually have higher interest rates because the repayment terms are short. The higher interest rates also help to cushion lending institutions from potential defaulters. A borrower may default after taking out an unsecured loan and did not leave any collateral for the lender to recoup the cash.
5. Credit Cards
You can use credit cards to finance smaller projects. You can either choose a card with a high sign-up bonus or an introductory rate.
It would be great to get one of those that have 0% interest within the first 6 to 18 months. If you take on the debt and pay it off within this period, you save up on interest.
There are also credit cards that offer cash rewards if the credit limit is exceeded. This discount offers a certain advantage to the user but ensures the debt is paid in full.
You can check out some of the awesome credit cards offers Farmers Bank has.
Your wife may not be too thrilled with this idea, but if you’re handy with tools, why not? You can also take up a few online classes or watch some YouTube tutorials for much simpler projects.
Doing it yourself makes you do the work according to your preference and save up on paying a handyman.
7. Government Loans
You can apply for a government loan at the Department of Housing and Urban Development for home funding. The requirements are different according to regulations of different states but are relatively cheap.
The loan will be approved if it is your primary home, and you will own it for around ten years.
Utilize These Home Funding Options to Finance your Home Improvement Project
You no longer have to stare at those ugly water stains that form on ceilings boards of leaky roofs. The annoying dripping sound of a leaky faucet can also drive you crazy when you’re trying to sleep. Get rid of that too.
Check out these ways to finance your home improvement projects to complete your home improvement without financial constraints.
You are now equipped with the knowledge of how to go about home funding for your projects. It’s all up to you and your budget. You can check out our blog for more informative personal finance content.
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