There’s no getting around it. If you plan to remodel or make improvements, for instance having plumbing and residential or commercial roofing services, you’ll need to spend money, and you’ll need to know all your options. Review these financing methods to help find the best way to fund your project.
Cash is King
If you have cash on hand, you may want to use it on your project. When you pay cash, you won’t need to make payments, qualify for a loan, or pay interest and other loan costs. You also won’t need to use your home as collateral, which means you won’t risk losing your home if you can’t repay the loan for some reason.
Charge to Credit Cards
Credits cards are ideal for projects that only cost a few thousand dollars. Although credit card interest rates are sometimes hefty, you won’t need to pay loan fees, closing costs, and you’ll keep your cash in your pocket for unexpected problems or needs. However, remember to pay off loan balances quickly, since interest charges accumulate over time and increase the bottom-line cost of your project.
Contractor Financing
It’s smart to steer clear of assistance from contractors and contractor-recommended lenders. Unfortunately, some contractors receive kickbacks from sub-prime lenders, which means the loan may come with extra costs and fees.
Home Equity Loans
Similar to primary mortgages, this type of loan uses your home as collateral. According to Home Exterior Systems (www.homeexteriorsystems.com), with home equity loans, you borrow against the appraised value of your home minus the amount owed on the existing mortgage. The loan amount and interest rate are both fixed, and the interest is tax deductible. Depending on the lender, you may need to pay closing costs, and like other home-secured loans, foreclosure is a risk if you don’t make payments. You may also get in touch with hard money lenders to explore more financing options.
Home Equity Line of Credit (HELOC)
HELOCs resemble revolving lines of credit, since you can withdraw money over time. The withdrawal amount is based upon your available home equity. HELOCs are often used for long-term projects or if additional funds may be needed for future projects. Interest rates are usually variable, meaning they can go up or down based on prime interest rates. Interest is tax-deductible. This type of loan also uses your home as collateral, so if you don’t make payments, foreclosure is a risk.
Refinance for Cash
You can also refinance your original mortgage for a larger amount of money, and then collect the difference in cash. Similar to your original home loan, you must pay closing costs and fees. A good time to refinance is when interest rates are low, home prices are on the rise, and your remodel cost is large.
Unsecured Personal Loans
Although some homeowners obtain personal loans from family and friends, many banks and credits unions also provide unsecured personal loans for amounts under $10,000. Unsecured personal do not use your home as collateral.
Use Your 401(k)
Certain 401(k) plans permit borrowing for home improvement projects. On the up side, there are no fees, you won’t need to qualify for the loan, and rates are often low. Yet, if you leave your job, you must pay the full balance or pay withdrawal penalties and taxes. Other caveats include penalties and taxes if the loan isn’t paid within five years, and you will have less money in your retirement account even after you pay off the loan.
Title 1 Loan
Although banks provide Title 1 loans, these loans are insured by the federal government. Designed to finance low-to-medium sized residential remodel projects or to build nonresidential structures, this type of loan uses your home as collateral and charges interest and closing costs. Although Title 1 loans don’t need homeowner equity, they cannot be used for nonessential items, such as swimming pools, and the maximum loan amounts for single-family homes cannot exceed $25,000.
This article was contributed on behalf of Home Exterior Systems, your number one choice when looking to improve your home. Click here and see how they can help you!
