Home improvement projects can improve our quality of life while adding value and efficiency to our homes. These projects can range from updating your fixtures to completely remodeling the kitchen. At its most expensive, you may have to take out a loan to finance the project to avoid draining your savings.
Budget Carefully Before You Begin Any Home Improvement Project
Before beginning any home improvement, know what you want to do and budget carefully. How much are you willing to spend? Make a plan and a budget and stick to it to avoid paying more than you can afford.
After the project is done, keep all of your receipts. That way, if you need proof of payment or have to dispute errors, you have the records you need.
Home Equity Line Of Credit (HELOC)
A home equity line of credit (HELOC) is a type of loan that acts much like a credit card, using your home’s equity as “cash” that can be used to finance your project. HELOC interest rates are variable, so expect a different payment each month. To qualify for a HELOC, you must have good credit and enough equity in the home. You will be required to pay back the amount you borrowed at the end of the loan period.
Home Equity Loan
A home equity loan is often called a second mortgage and uses your home as collateral. This loan gives you a fixed amount of money to work with to finance your home improvement project. Know your budget before you take out a home equity loan, so you know how much you need to borrow. This will help you avoid using up all of your home’s equity.
Like a HELOC, a home equity loan has its share of closing costs and other fees.
Energy-Efficient Mortgage
If you need to make energy-efficient improvements to the home, consider an energy-efficient mortgage. This mortgage helps borrowers finance energy-efficient improvements to an existing home. There are several types of energy-efficient mortgages, with the HomeStyle® Energy mortgage allowing up to 15% of the as-completed value of the property for improvements. To get an energy-efficient mortgage, you will have to have an energy assessment, which will then be provided to your lender.
Personal Loan
The advantage of a personal loan for financing a home improvement project is that they are relatively quick and easy to get. And unlike a HELOC or home equity loan, you are not putting your home up as collateral.
Before taking out any loan, consider their full cost, including rates, closing costs, origination fees, and any other charges. Consult with your trusted financial advisor or lender to find the best option for you and your needs.