4 Options for Financing Home Renovations
Whether you're looking to update your home for the benefit of increasing your property's value or to sell it for a larger profit, a home renovation is a huge undertaking. One of the biggest questions you might encounter is how to pay for such a project. While you can save money to pay for a home upgrade, you have four solid financing options available.
Home improvement loan. This loan is an unsecured personal loan offered by banks, credit unions, and other types of online lenders. Since it's unsecured, this loan doesn't involve using your home as collateral to qualify and your interest rate is based on your credit score. It's best for small or midsize projects.
Home equity line of credit (HELOC). This is a secured loan that's backed by your home. With this option, you might qualify for a lower interest rate compared to an unsecured personal loan. Since a HELOC involves rolling credit, you can take what you need when you need it, which is perfect for a large project.
Home equity loan. Often referred to as a second mortgage, a home equity loan is a lump sum paid that you can repay over several years in fixed monthly payments. This loan is also secured and best suited for medium to large projects.
Cash-out refinance. This option involves replacing your current mortgage with a new, larger one with a different interest rate. You pocket the difference between your old mortgage and the new loan, so you can use that money for your renovation. This option is best for smaller projects and emergency repairs.
Financing a home renovation takes plenty of planning. Make sure you consider all your options and select the financial path that works best for your needs and budget. Don't be afraid to talk with your loan officer to make sure you're getting the best rates.
Sources: Washingtonpost.com, Bankrate.com, Nerdwallet.com, Guy Vetrano