Remodeling your home is a worthwhile investment, but you still have to figure out one major issue: How will you pay for it? Knowing the answer to this question upfront enables you to establish a preliminary budget and set a realistic expectation of what you can get for that price.
While paying for home renovation in Fenton, Michigan, out of pocket is optimal, you might not have the funds available in your savings account. Fortunately, there are several other options for financing a remodel, each of which can contribute to helping you transform your home for the next chapter of your life.
How Do You Fund a Renovation Project?
Picking the best financing option for your home improvement project depends on several factors, including the size of the remodel, the estimated duration, and your financial situation. It’s also important to consider how much value the project will add to your home in Fenton.
You should check with your established bank, credit union or other financial situation about what they offer, and your home remodeler may also have insight into financing options. Here is a look at some of the most popular ways to pay for renovations:
1. Home Equity Loans and HELOCs
Both home equity loans and home equity lines of credit (HELOCs) use the value of your house as collateral. With a home equity loan, you are given a lump sum upfront that you then repay over time according to a set schedule. In contrast, a HELOC offers a revolving line of credit that you can borrow as you need, which is ideal for a lengthy or ongoing remodeling project. Because these financing options are backed by your house, you can generally qualify for a lower interest rate. However, most HELOCs have variable interest rates that are impacted by the state of the market. You also want to make sure the value of your home is higher than the amount you want to borrow and that you can make repayments on time. Otherwise, you put your home at risk of being foreclosed upon.
2. Home Improvement Loans
Unlike home equity loans or a HELOC, home improvement loans are unsecured personal loans offered by a variety of financial institutions and online lenders. Home improvement loans usually are offered in a lower amount and with a shorter repayment timeline, which makes them most suitable for a small or mid-sized project, like a window replacement or bathroom renovation. Also, because they’re unsecured, you may face a higher interest rate, especially depending on your credit score.
3. Mortgage Refinance
A mortgage refinance is another way to utilize the value of your home for its improvement. This method involves replacing your current mortgage with a new one. You are given a new interest rate, and with a cash-out refinance, you get to collect the monetary difference between your old loan and the new one. That money can then go toward your remodeling plan. However, there are few drawbacks to mortgage refinancing. First, you have to pay taxes, appraisal and origination fees, and other costs related to closing. Most likely, you’ll be extending the life of your loan, which isn’t always advantageous. On the other hand, if interest rates are lower now than they were when you first purchased your house in Fenton, you could benefit from the refinance.
4. Credit Cards
As with most major purchases, you want to use your credit cards sparingly. They can be helpful if you are tackling a minor update, like installing a new bathroom vanity or replacing the floor in your kitchen. If you have a healthy credit history and can make repayments on time, your credit card eliminates the need to seek other financing. However, the interest rate on credit cards is typically higher than that of other home improvement loan options. Plus, you don’t want to risk falling behind on your payments, which is why it’s imprudent to use credit cards for a major home improvement.
5. Government Loans
Finally, there are some government loans available for homeowners who fall within a specific income level or meet other requirements. The U.S. Department of Veterans Affairs (VA) offers and backs a couple home loan programs to help current and past service members buy, build or improve a home or refinance their current home loan. The Department of Housing and Urban Development (HUD) also has options for individuals to borrow money to improve the livability of their home. For Michigan homeowners, the Michigan State Housing Development Authority offers Property Improvement Program (PIP) loans. If you have equity in your home, an annual household income up to $125,300 and a credit score of at least 620, you may qualify. The improvements must substantially protect or enhance the basic livability of your single-family house.
Paying for Your Home Remodel in Fenton
As you work on establishing a preliminary budget for your home improvement in Fenton, you have to balance what you want and need with what you can afford. You’ll want to carefully evaluate your financial health and financing options to select what’s best based on your specific project and personal circumstances. With a rough budget in mind, our team at Top Choice Builders can help you develop a custom home renovation plan that’s centered on your vision and falls within your price range. One benefit of our design-build process is that all key players are involved with your project from the start, providing valuable insight, implementing cost-saving measures and helping you make the most of your investment.
“How to pay for home improvements.” Bankrate. Accessed online at https://www.bankrate.com/loans/home-improvement/how-to-pay-for-home-improvements/
Michigan State Housing Development Authority. https://www.michigan.gov/mshda/0,4641,7-141-45866_47906_49317—,00.html