Unless you can pay cash for your important home improvement projects, you will need to borrow the money to spruce up your house. On average, you can expect to pay $25,000 to $45,000 on the low end to renovate your home, and on the high end, you will pay roughly $75,000 or more. If you have that kind of money laying around, you are in good shape. If not, then you need to look at some of your financing options.
Aside from lowering your interest rate when you refinance, it can provide you with additional capital to fund your project. Although the primary purpose of a refinance is to lower your interest rate, you can tap into the equity if the appraised value of your home is higher than what you currently owe on your mortgage. Choosing this option helps you in two ways: a lower interest rate and additional capital from your home’s equity.
Home Equity Loan
If the interest rate on your mortgage is already low, you can take out a second mortgage on any equity you have in your home. Known as a home equity loan, lenders will give you a new mortgage based on your equity, and you receive the funds from the loan upfront. Keep in mind that a home equity loan does not replace your first mortgage, so if you do choose this option, you are on the hook for both mortgages. It is highly recommended that you do your homework on home equity loans before you sign on the dotted line.
Home Equity Line of Credit
Many homeowners trying to fund their renovations prefer this option over home equity loans. Instead of receiving one big payment from the lender, you can use the equity in your home as a fixed line of credit. You use this line of credit in the same way you use a traditional credit card. If your home improvement project will last for several months, a HELOC is a good option since you can use money the moment the need arises. If you are unsure about your project’s budget, this option gives you more flexibility than having one lump sum payment from a home equity loan.
Before you consider any of the options, you need to determine how much money your project will cost, how much interest you can expect to pay and how long it will take you to pay back the financing. If you plan on waterproofing your basement through a company like Baywest Construction LLC to prevent flood damage, it is best to speak with an expert before making your final decision.
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How to Finance Important Home Improvements. Please, do share your comments below…
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