If you and your family are looking to take the leap on some major home improvements, whether it’s through a remodel, renovation, of full-on rebuild, there’s no question that you are going to have to come up with some way to pay for all of it!
Of course, if you have the money saved away and can afford to use all of it on your home improvement project, great! However, it is more common that people need some help financing home remodeling jobs.
So, if you are in that boat and need some financial assistance to make sure that you can cover all of the costs of a home rebuild, here are some of the most common ways people get the money they need.
Personal loans
One of the most common ways people fund small-to-medium-sized remodeling homes is though an unsecured personal loan. Something like a bathroom makeover or window upgrade might fall under this category.
The primary reasons why people go for personal loans is because they are incredibly easy to find and because they are unsecured.
An unsecured loan means that you are not forced to put anything like your house up for collateral in the loan should you fail to repay it on time. Personal loans typically come with relatively low interest rates.
Home equity line of credit (HELOC)
HELOCs are common for people who are looking to have a large line of credit that they can use at their discretion to complete a bigger sized project. This line of credit is based on the value of your home. Because this is a secured loan, the interest loans on HELOCs are typically very low.
That being said, because they are secured loans, it means that your home could be foreclosed on if you do not make your payments on time.
One major caveat to keep in mind is that in order to take out a substantial HELOC that is worth the trouble, you have to have significant equity in your home. The value of your home has to be significantly higher than what you owe.
Home equity loan
While a HELOC is a line of credit used to pay for a home remodel, a home equity loan is a lump sum that you can repay over a number of years in fixed monthly payments.
With these types of loans, you do not have to worry about market fluctuations, because you will be paying your fixed rate regardless.
If you know exactly how much the project is going to cost, a home equity loan could be your best bet.
Refinancing your mortgage
If there has been a drop in rates and you are well on your way to paying off your mortgage, refinancing your current mortgage can be a great way to pay for improvements. Simply apply for a new mortgage with that lowered rate and use the difference between your new loan and what you owed on your old mortgage in order to pay for your home improvement.
As a rule, refinancing your home is only really a good idea if there has been a drop in interest rates and if you do not plan on moving homes for quite some time.
