Summer is the most popular season for taking on home improvement projects. Whether it’s taking care of the yard or renovating a room, homeowners are flocking to hardware stores and dreaming of their home looking like an HGTV project. But before you start knocking down walls, you have one big thing to consider; financing. The average American has under 4,000 dollars in their savings account. If you fall into that category, here are some ways you can handle financing home improvement projects in your house this summer.

Financing Home Improvement Projects

When it comes to financing home improvement projects, there are plenty of options to choose from that will fit with whatever situation you’re in. Here are some of the most popular:

1. Cash

The simplest and most obvious means of financing home improvement projects is to pay with cold hard cash. If you have cashed saved up, either specifically for financing home improvement projects or just for fun, using cash is the easiest and safest way to pay for home projects.

By paying for a home improvement project with cash, you avoid having to pay additional interest or additional charges. Its the cheapest option, in the end, to pay for your projects. Additionally, since you aren’t using any collateral, you don’t have to worry about losing anything other than the money you’re spending, making it the safest payment option.

If you have smaller home improvement projects, like painting a room, redecorating, or general maintenance, cash is a great option as far as a payment. For example, if you are working on plumbing maintenance and need to pay for a septic tank cleaner, paying in cash is a better choice than taking out a loan or line of credit. Additionally, if you needed a garage door spring repair, cause you’re garage door just won’t open, this is a typically very affordable repair and something you can easily pay cash for. If the spring of your garage door is broken and therefore you are unable to easily and efficiently access your garage, this is an easy fix and a project that won’t break your budget.

However, if you are planning to entirely renovate a room, you may not have the cash saved to pay for all of the materials and professional help you may need. Consider the size and scope of your project before you decide whether cash is your best payment option. If you have some cash saved but not enough to cover the total costs for your project, you will need to look at other additional options.

2. Credit Card

After paying with cash, using a credit card for financing home improvement projects is the next most common option. This is usually only an option for someone working on a project that falls within a few thousand dollars, depending on your credit limit. Some credit cards are even interest-free for the first few months to a year. Some cards even have rewards programs, so you can earn points or cash back for your purchase.

However, credit card interest rates are usually some of the highest, so before you put a large purchase on your card, have a plan of how you intend to pay it back in a timely manner. If you wait too long, the amount of interest you end up paying will greatly raise your total cost for the project.

An example of a home improvement purchase that could be financed on a credit card would be cabinet doors. If you’re renovating your kitchen and replacing the cabinetry, purchasing the new cabinet doors on your card is an option. Especially if you don’t have enough cash saved to buy them all at once.

Another example would be if you’re replacing some of the doors in your home. Whether it’s interior wood doors or hollow metal doors for your garage or workshop, you’ll need a decent chunk of money at once to pay for them. Doors are more expensive than you may think and if you’re replacing a few at a time, you may not have the cash saved up to pay for all of them at once.

3. Personal Loans

If cash or credit cards aren’t an option for you when it comes to financing home improvement projects, your next best option may be considering taking out a personal loan. Personal loans are one of the easiest to find and be approved for. You can apply for one at your local bank or credit union. Personal loans, unlike other options, don’t require collateral so you won’t have to worry about putting your house up for it. If you get approved, some lenders will transfer the money into your account in as little as one day. There are quite a few different options that have different interest rates and repayment terms, so make sure to do some research before you settle on an option.

Personal loans are great for midsize home improvement projects or a specific item that may be pricer. For example, someone looking to get custom architectural metalwork done on their home is looking at a much bigger price tag and will need a larger chunk of money at once to pay for the materials and labor. It’s also a good option if a homeowner has some money saved for their project but not enough to cover all of the costs.

If you think a personal loan sounds right for your project, keep in mind that your qualification depends on your credit score. If you don’t have a high credit score, you may need to look at different options for financing your home improvement projects.

4. Home Equity Line Of Credit

A home equity line of credit is one of the more popular options for financing home improvement projects, especially those that are larger scale. A home equity line of credit is a secured loan, backed by your home. This means that your home is put up as collateral for the loan. Because of this, you can qualify for lower interest rates than you might with a personal loan.

A home equity line of credit is a “revolving” stream of credit which means you can continue to take what you need when you need it, similar to using a credit card. This is a great option for a home improvement project that is ongoing or will last longer. For example, if you’re working with a roofing company to completely refinish your roof, you may need to have additional money if the project takes longer than expected or additional repairs come up. A home equity line of credit would be great for this.

The risky part of a home equity line of credit is that your house is the collateral. This type of financing has a set term in which payment needs to be completed. If you are having problems paying back the loan, you could end up losing your home. If you do face issues along the way, you may need help from lawyers to keep your home or work out a repayment schedule. You’ll also need to consider how much equity you have in your home before you apply. If you don’t have sufficient equity, you likely won’t be approved for a home equity line of credit.

5. Home Equity Loan

A home equity loan, also known as a second mortgage, is a loan that is paid out in a lump sum and repaid over the course of a set amount of years. Just like a home equity line of credit, a home equity loan uses your house as collateral. Home equity loans have a fixed interest rate, so you don’t have to worry about market fluctuations impacting your rates. Once you lock in the loan, you will pay the same interest rate for the life of the loan. The downside to this is if the market changes and rates drop, your interest rate won’t go down.

If you know exactly how much you need for your project, this could be a good option for those that are larger scale. As long as you are using the loan for home improvement projects, the interest you pay on the loan is tax-deductible up to one million dollars.

Using the same example as the home equity line of credit, if you are performing major roof repairs on your home and know exactly how much money you will need, a home equity loan may be a great option for you. To figure out your totals, calculate the cost of materials, such as asphalt shingles and tools for installation, as well as the cost to pay any professionals for their labor.

Just like a home equity line of credit, a home equity loan uses your home as collateral, so you if fall behind on payments, you run the risk of a foreclosure on your home.

6. Refinancing

Another option to consider for financing home improvement projects is refinancing your mortgage. This is different than a home equity loan or second mortgage because rather than adding an additional mortgage, you will replace your current mortgage with a higher total and new interest rate. You get to keep the difference if your new mortgage is higher than the old one, which is a great way to get the money needed for a home improvement project.

Refinancing your mortgage can have multiple benefits, the first of course being that you get to keep the cash difference. The second major benefit comes if you choose to refinance when there is a drop in rates. By changing your interest rate, you could save yourself hundreds or even thousands of dollars that you might have spent in interest over the life of your mortgage.

Because you likely won’t want to add too much more to your mortgage, refinancing is a good option for medium scale home improvement projects. For example, if you’re refinishing the asphalt on your driveway, the money you get from refinancing could cover the cost of materials, asphalt delivery, and even labor costs for professional work.

Before you settle on refinancing, you’ll need to keep in mind some of the drawbacks. You will have to pay additional fees for an appraisal, and taxes on closing-costs. You also run the chance of lengthening the life of your mortgage by signing up for a longer-term, which could also equal more money by paying interest for a longer-term. You should really only consider refinancing when you are guaranteed a lower interest rate.

7. Government Loans

One less common but equally great option for financing home improvement projects is a government loan. Government contracts and loans are great for people that have recently purchased a new home and may not yet have much equity in it. A Title 1 loan allows you to borrow up to $25,000 without having any equity in your home. Many new homeowners who need to make some improvements and repairs consider this option. The one stipulation is that the money must be used for renovations that improve the “livability” of the home. So if the improvements you have in mind are purely aesthetic, you may not qualify for this type of loan.

Some examples of improvement projects that would qualify for a government loan are major plumbing repairs, repairs on the foundation of a home, and electrical work. Make sure to talk with an agent about whether your specific improvement projects are covered.

You may also qualify for a home repair grant in your area. This is a type of financial aid that is given out at the state and federal level. Again there are specific requirements to qualify, so talk with an agent beforehand about your repair needs.

In Conclusion

As you consider your different options for financing home improvement projects, the most important things to consider are, (1) the total cost of your project, (2) how long the project will last, and (3) how much value completing the project will add to your home. While some financing options seem riskier than others, if you have properly considered these three things, you will be able to make the smartest choice for your project.

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