Paying for a home remodel, options
Taking on a home remodeling project can be exciting and scary. While there is a lot to look forward to in creating a space that is designed just for you, there are many unknowns. The biggest unknown for most homeowners is whether or not there will be enough money to complete the project. In today's economy it is very hard to stay current with all of our obligations. Coming up with additional money to make home renovations may seem impossible without help. Fortunately there are many different options that you can explore.
Savings
Before you consider going into debt for your project, you need to realize that it is always better to try to come up with the money that you will need for your project on your own. Interest can really dig a deep hole in your pocket book. Too many people forget that banks get rich off of people who pay interest for borrowing money. Also remember that it is not recommended that you drain your bank account for your remodel, it is always wise to have some money set aside for emergencies. You may also want to consider borrowing money from family or friends, anything to avoid paying interest.
Refinance
You can refinance you home to lower your monthly mortgage payment and thereby be able to set more money aside to fund your remodel project. You will want to compare the different refinancing rates that are available to you so that you choose the best lender possible. This option also provides a tax benefit and the costs of refinancing your home are tax deductible.
Home equity loan and a home equity line of credit
Both a home equity loan and a home equity line of credit are shorter term loans than your first mortgage. You will also need sufficient home equity for both of these loan options and both options are tax deductible. With a home equity loan the money being lent is distributed in a lump sum. A home equity line of credit allows you only to borrow the money that you need at a given time. In both loan cases you will want to shop around for rates and compare the advantages and disadvantages of different lenders.
Construction loan
A construction loan should be taken out in an amount that just covers the projected costs of the project. The interest rates on construction loans are higher than other loan types but may be the only option for homeowners who have little or no equity in their home. Different lenders will have different terms and rates so be sure to shop around.
Get financed by your contractor
There are situations where a contractor is in a position to be able to offer funding for his services. You will need to ask your contractor to find out if this option is available to you. Obviously you will want to compare the rates of different contractors before making a decision. Also realize that contractor loans will typically have high interest rates (as they can charge whatever interest they see fit). This option does not carry any tax benefit in the form of a deduction. For this and the reason of high interest, a contractor loan should be a last consideration.
Credit cards
Credit cards are often the next option that some home remodelers consider when paying for a home remodel. Be warned that credit cards tend to have the highest interest rates of all the loans that you could apply for and therefore using your credit card to fund your remodel should be considered only as a last resort.
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Tags: paying home remodel project loan fund options borrow money credit interest equity
