One of, if not the most common concerns we hear from prospective clients is whether or not they’ll be able to afford a home renovation. This comes as no surprise to us because we understand that making the decision to renovate your home is a tough thing to do given that it’s a huge investment both in terms of time and money. That’s why we wanted to give you peace of mind by providing you with some information to familiarize yourself with some of the most common ways to pay off a home renovation project.
FREE Consultation
While some contractors or architects might charge a fee or require a deposit to schedule a meeting or get started on drawings, we do not! We believe the initial meeting is crucial to starting off on the right foot which is why we offer free consultations where we’ll sit with you to discuss your wants and needs. The information we take away from this allows us to come up with a design plan as well as a transparent budget that you’ll be comfortable with so that everyone is on the same page before moving forward. Once the agreement is signed and we’re ready to get started we’ll even put together a payment schedule that maps out the entire project to help keep you on track.
Cash In Your Savings
The most straightforward option, assuming you can afford it, is to pay cash. The benefit of going this route is you will not have to go through the hassle of getting approved for any loans or be required to pay back any interest or debt at the conclusion of the job which can negatively affect your credit score. With that said, this option takes a little bit of patience and preparation because in some cases it takes time to save up enough to cover the cost which could delay your project.
Borrow Now, Pay Later
According to a recent Bankrate survey, credit cards (37.4%), home equity loans (8.6%), and personal loans (8.5%) account for a large portion of payment methods for home remodels. The common advantage with all these options is they allow you to get started on your project sooner because unlike having to save up, these generally require an approval process which can take as low as a couple days to complete. These come with slightly more risk however because as we briefly mentioned before, because the funds are being borrowed from the bank you will be required to reimburse them at the conclusion of your agreement most likely with interest.
Now, let’s define and compare a couple of the most common borrowing methods:
- Home Equity Line of Credit (HELOC)-This is an agreement that is backed by your home which makes it more flexible. Therefore, you’ll have a higher borrowing limit with lower rates and is a form of revolving credit meaning you can borrow as you need and only pay interest on that amount. This is especially beneficial for bigger jobs if it goes over the initial budget. If you fail to make payments on time your home can be foreclosed at any time however.
- Cash-Out Refinance-Like the name implies, you’re basically replacing your existing mortgage with a loan which could improve interest rates and give you access to more money but similar to a HELOC you’re putting your home at risk if you go into default.
- 203(k) Loans-This is a government-issued mortgage through the Federal Housing Authority (FHA) to help cover home repairs or improvements. These come in two types, limited allows you to borrow up to $35,000 for small to mid-range projects while standard loans help finance larger jobs like structural issues.
- Personal Loans-Unlike home equity loans, these do not involve having to use your home as collateral but as a result you’ll have access to smaller amounts and the rates tend to be higher with shorter repayment terms making them less common for paying off home improvements.
- Construction Loans-A short-term, high-interest option used specifically for renovations. Unlike personal loans which are generally paid as a lump-sum, these are paid out in stages as the job progresses (when foundation is laid, framing begins, etc.). There are several types, for example, construction to permanent gives you the option to transfer the loan into a mortgage once the building is complete but you can also opt for a construction only loan which requires you to pay the amount back in full at completion.
- Credit Cards-These are typically better served for smaller DIY improvements because they usually will only grant you a credit line of a couple thousand dollars.
Partner With Us
Our goal is to not only provide our clients with beautiful homes that they can be proud of and enjoy for years to come but also to make the process as stress free as possible! We have great relationships with a variety of local banks and lenders so we can help put you in touch with the right person depending on what’s best for your individual situation. Give us a call at 631.750.2837 or fill out the form below to get started on your renovation journey today!
Contact Us
