Blueprints from a home remodel.

Paying For Your Remodel

Are you dreaming of a new kitchen or bath? That perfect remodel can be a dream come true but getting the money to pay for it can be a nightmare. Luckily, we have some options for you. Check out a five of the great ways that you can pay for that next home renovation.

Financing A Remodel

There are a lot of different ways to finance a remodel. The one that will work for you will depend on your credit, home equity and the scope of the renovation that you are looking to take on. Let’s get started looking at your options.

Credit Cards

If you have decent credit, you can take advantage of a credit card introductory offer to finance your project. To attract new clients, may credit card companies will offer promotional interest rates. This could be a rate below the current prime rate or even 0%. The term of the rate will vary but low rates could last up to a year.

For this to be a viable option, you must be fairly confident that you can pay off the debt before the interest kicks in. This makes small and relatively inexpensive projects like a hall bath update the ideal candidate. You would not want to put a full kitchen remodel on a card or cards.

If you pursue this option, make sure to read all of the fine print of the offer. Know what it would cost you if you could not pay off the loan in time. Is there no interest for a set term or is the interest merely deferred as long as you pay off the balance in time? Also, check on what the interest rate will be after the term.

Installment Loans

An installment loan or personal loan could be your ticket to renovation. With loans from $500 to $50,000, they can fit any sized project. To qualify, you just need to have adequate credit and income. The process of applying for and obtaining the loan is not as complicated as other loans like a cash out refinance. In addition, this is an unsecured loan so the lender will not have an interest in your home.

The benefit to an installment loan is that you will have fixed and payments and a set interest rate throughout the life of the loan. You will know exactly what needs to be paid until the loan is complete. To see if this is an option for you, you should get an instant loan quote online. Then you will be able to compare it to other options.

Mortgage Refinance

With a mortgage refinance, the application process is much more complicated and cumbersome but it might be the cheapest way to finance your renovation. As an added bonus, you might be able to lower your overall interest rate, depending on where you are at now. When you refinance your mortgage, you will be able to pull out equity and use that towards your construction project.

The amount that you can borrow will depend on the equity in your home and the rules in your state. Texas, for example, only allows you to use 80% of the value of your home. So, if your home is worth $200,000, your new mortgage can not exceed $160,000 and you would have to owe less than that on your current mortgage to pull money out. The type of loan that you want may also affect you. FHA loan refinance, for example, has special rules.

Line Of Credit

If you have equity in your home, a Home Equity Line Of Credit or HELOC might be right for you. These loans have a lot of benefits one of which is an interest rate that is generally lower than that of an installment loan. You should know though that the interest rate is variable so it can go up and down while you are paying down the debt. An additional benefit is that the line of credit is not a one time thing. It is an ongoing line so you can use it over and over again.

The disadvantage to the HELOC is that you are giving the bank an interest in your home. It is a secured loan which is why the rate is overall lower than other loans. Also, as I already said, the rate is not fixed. It will go up and down so your payments will change with time.

Contractor Financing

Many contractors might offer their own lines of credit. Often, they will have deals making the loan enticing. Deals might be for reduced or interest free terms. They can do this because they will make money on the work that they are being contracted to do.

If you decide to go this rout, be sure to get several bids on the work. You want to make sure they are not padding the cost of the remodel to make up for the reduced interest. Also, know that since the contractor would be doing work on a home, they can put a mechanics lien on the property if you default. This would be a lien that you would have to pay off before you could sell your home in the future.

Do Your Research

To decide which option to go with, you should look into each and every option. Check out what kind of cards are out there, get a quote for a HELOC, cash out refi and contractor financing. Just make sure to ask the creditor if it will be a soft or hard credit hit. A soft hit will not affect your credit score.

Once you have decided on the source of your financing, be sure to also research the contractor. You should get at least three bids on any major project and then check out the contractors reputation. A quick search online should show negative reviews if there are any. It should also show positive reviews. An absence of any information is a red flag that the contractor is new or has changed their name. Finally, once you decide on a contractor, ask for a few references as additional security and actually check on them.

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