Planning on a home remodelling or a refurbishing project is a costly affair but can be easy to deal with if you have pre-decided on how to finance the job.
There are many payment and financing options available in the market. The one that suits your needs can depend on a lot of factors.
From how much your project costs to how much equity you have in your home, everything matters. This article focuses on describing the most commonly used payment methods for home renovation jobs.
If you have saved up enough money to pay for your home improvement project, you can avoid taking financial help altogether. You can cut back on the interests and finance charges. In turn, it helps you save some more money.
Besides, you do not have to use your home as collateral, so there is no need to worry about losing your home to any other financial institution.
A home renovation project can sometimes cost you a lot of money that you might consider clearing the payments with a credit card. Although credit card interest rates are high, you are not required to pay any loan fee amounts or closing charges.
Be wary of this facility and use a credit card only if you can pay off the dues in a few months.
You can borrow money in unsecured personal loans without requiring collateral against your loan. This implies that if you fail to pay the dues, your house is not at the potential risk of foreclosure because of that.
Several banks also offer such unsecured personal loans, but they are usually designated for small amounts of money, say under $15000. Some homeowners are fortunate enough to be able to loan some money from within the family.
Payday loans are short term loans extended to the borrowers by various institutions like payday loan lending centres, online lenders, and some banks. These financial instruments offer immediate help when in need and are America’s most favoured way out of financial emergencies.
These loans can help you when you are facing a money crunch or when rejected by a credit card issuer or a banker.
Thus, they are designed to provide financial assistance and need you to show only your paycheck for the assurance of your employment and paying ability. They are known for their ease of approvals and the very fewer documentation requirements.
Home Equity Loans
A loan that uses your home as collateral against your loan amount is termed as a home equity loan. With such a loan, the amount you borrow against your house is fixed and is an advantage if you are looking to finance a one-time project.
In addition, the interest rate is also fixed, meaning that you will stay unaffected by any rise in the interest over the duration of the loan.
Another advantage of availing a home equity loan is the lucrative tax benefits it provides. However, there certainly is a risk of losing your home to foreclosure just in case you do not clear your dues in time.
Refinance and Get Cash
Another alternative for financing your home renovation project is refinancing your original mortgage for a greater amount and making use of the cash difference. With any home loan, you have to pay closing charges and fees.
This option of refinancing might seem attractive if you have a huge project at hand, home costs are rising, and the rates of interest are low.
Title 1 Loans
These loans are provided by banks but are insured by the Federal Government of America. They are devised to help you finance moderate rehabilitation property projects or construction of commercial buildings.
Like other home equity loans, you can use your home as collateral against the Title 1 loans and pay the interests and closing charges.
However, the difference lies in the condition that Title 1 loans do not require the homeowners to have equity in the home.
There are also some limitations to this scheme; you can avail these loans for non-essential luxury item purchases like swimming pools and other sports and recreational equipment. However, the highest loan amount for a single-family house is $25,000.