Financing Options for Remodeling Your Home

Taking that dated home design and bringing to a more efficient, more modern look is high on the honey do list. You want that nice jet tub that you see on HGTV or the sub-zero refrigerator that has the cabinet inlay finish to give that seamless look.

Despite all of the goals and dreams, your bank account is giving you the moral support you need to make this a reality. Instead of having to wait and save your money, you are considering taking out a loan to finance the remodeling project.

There are many different ways to secure funding for remodeling. However, you need to also understand that borrowing money does have a cost in terms of fees and interest as well.

Also, pitfalls as well just in case you are not able to pay back the loan. You should be financially sound, be able to take on the loan and have a considerable amount of savings in the case you get sick or lose your job.

Disclosure: Before signing up with any loan program, discuss with a finance professional or planner to see which is the best route in financing this project.

SIX Types of Remodeling Loans for your home: 


Home Improvement Loans

Home Improvement Loans do not work on the equity of your home. Instead, this type of loan is determined by the homeowner’s credit score and capability of repaying the loan back.

If you are eligible, you can have your loan funded fast and will not put any sort of lien on your home in case of default.

The Pros of having a home improvement loan is having a low fees, Not needing to use your home as collateral and usually funding your project can happen in as little as a day. Usually, your credit has to be in really good shape in order to assume a financial instrument such as a Home Improvement Loan.

The negative points of having a home improvement loan is that your interest costs to borrow money can be very expensive in comparison to other types of financing. You will also probably not be able to qualify as much, as you are not using any collateral to secure the loan, just your credit worthiness. Also, no tax benefits.


Home Equity Loans

Home Equity Loans are very different from Personal Loans in that instead of credit being a major factor, your Home’s equity is also added to the equation in how much you can borrow. 

Home Equity is when the market value is greater than the money owed to a lending institution. In the case that your home is appraised at $240K in the real estate market and your Mortgage balance is $190K, you have $50K in equity. For example, if you sold your home today, before taxes, realtor fees, etc. You would have $50K leftover after paying back the bank in full.

The Pros of having a home equity loan is that you will have a lower interest rate than a personal loan. The more equity that you have in your home, the more that you can borrow against. 

The negative points of having a home equity loan is that in the case that you default on your loan, the lending institution can put a lien on your home and go through foreclosure proceedings.

(Home Equity Lines of Credit) of HELOCs

The pros of HELOCS is that you can draw cash when need be, for home repairs, improvements, vacations and the like. You have no closing costs and low interest rates (If you can lock one in) and there are other financial advantage as well.

The Negative part of HELOCS is that it can be tempting to draw cash when you should not be doing so. The interest can vary (if the loan doesn’t have a locked in rate) and that alone can make your payment become huge overnight (think 2008!) This, just like Home  Equity Loans depend on your home’s equity and can be foreclosed on if you see this loan going into default.


Mortgage Refinancing

You could just go back to your bank or mortgage broker and discuss refinancing your home as well. There are plenty of advantage on why to do this.

Pros: You can get a locked, lower interest rate. Great for when you have a higher interest rate or a variable rate mortgage and would like to get a lower and more stable percentage rate. You can also take the equity out of your home and use it for remodeling projects.

Cons: But also keep in mind, it is like buying a home all over again, where you have to pay for an entire mortgage, because you are taking the equity moving it from your home, to your wallet for funding your project.


Credit Cards

Another option would be to use your own credit card. If you have great credit and have a huge line of credit from years of good usage, you may be able to get a decent cash back advantage from the card issuer and take advantage of any programs that they have. Could be air miles, cash back, bonus rates and more.

Government Loans

There are numerous government programs that are out there for low interest loans and even grants to help you remodel your home. The Department of Housing and Urban Development (HUD) has programs available. In many cases, there are particular criterias that have to be met, you may or may not be successful at obtaining them depending on that.

Considering that there are many different options and programs available for funding your remodeling project, have a careful look over each option and see in your situation which one is the best. 


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