There are many reasons people choose to remodel a home. Remodeling is often based on need. Gutters may need to be replaced, a roof may be leaking or floor joists may be sagging. Others may decide to remodel to make their homes more attractive, to create a larger and more functional living spaces; or to add value for the purpose of selling the home. Whatever the reason if you are looking for money to remodel there are several options for financing your project.
Start with a reputable contractor
Choosing the right contractor can save money in the long run. You might find that you will not need to borrow as much to accomplish your goals. A good contractor won’t price the job so low that quality work cannot be done. Neither will they price the job so high that you have to take a second job to pay for the remodel. They will look at your situation and give you options for materials and designs that will work within your budget. Check the contractor’s references and learn all you can about their work. A poor work ethic and shoddy craftsmanship might mean that you will pay someone else more money to correct a poor remodeling job.
Use the equity in your home to finance your remodeling project
If you paid $5000 down on your home and have lived in it for 10 years and have paid the mortgage down $45,000, you have equity of at least $55,000 in your home. This is assuming that your home did not decrease in value. In most cases banks will allow you to borrow that amount and pay it back with interest over a specified amount of time. A bank may recommend having the home appraised to determine the current market value. If the value has increased, you will be able to borrow more.
Home equity loans, also known as second mortgages, can work well for those who want to add value to their current dwelling for the purpose of selling it or for those who would like to turn a current home into a dream home. When looking for a home equity loan, work with a bank or credit union that will give you the best interest rate. The last thing you want to do is to get in over your head and lose assets that you have built up over time.
Home equity line of credit
Another option is the home equity line of credit. A home equity line of credit works almost like a credit card. This option offers an open credit line against the equity in your home. You can use this credit line in increments if you choose, so you don’t have to take all of the equity out of your home at once. With this type of loan you make a monthly payment on the amount of money you use. Generally, you can access money from the credit line as long as you have funds available and pay on time. Whether you choose a home equity loan or a home equity line of credit, avoid the temptation to keep borrowing and going into debt. The goal is to remodel your home, not to get into a financial bind.
Borrow from personal resources
If you have a 401-K, insurance plan, or investments that give the option of borrowing money, this is another avenue for getting money for a remodeling project. You won’t have to worry about a credit check since the money is yours. This may not be the best option however. Usually such plans are set aside for retirement, so interest and taxes are deferred. You may end up paying taxes and penalties if you can’t afford to put the borrowed money back into your account. Additionally you may never gain back the money you had set aside for retirement.