How to Finance a Home Improvement Project

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Whether you intend to sell your house or you want to remain in it for the rest of your life, home improvement projects are a good thing. The right project can give you a higher resale value and enhance the beauty and your enjoyment of your home.

Plus, if you’re the do-it-yourself type of person, you can have fun doing it. Getting to create and shape something with your imagination and sweat equity can be immensely satisfying.

The one downside to home improvements is the cost. They aren’t cheap, even though they can be a good investment. Because of the cost involved, paying for it out of your savings isn’t always possible. If you’re trying to find a way to finance a home improvement project, there are plenty of ways for you to do it.

Opening Up a New Credit Card

Although nearly everyone knows about the dangers of carrying credit card debt, not everyone is as well versed when it comes to the benefits of using a credit card.

They can be useful when financing a home improvement project, particularly if you’re using a new credit card. New cards may have a couple of perks your regular card doesn’t have, including:

  • The possibility of getting a zero percent APR for up to 12 months exists with a new card. That would give you plenty of time to pay off that balance without owing a cent in interest.
  • You can hit the spending requirements for your sign-up bonus to potentially get hundreds of dollars back.

If you can find a rewards credit card that offers cash back, you could save at least 1 percent off your costs. That would be the bare minimum discount possible with a credit card.

Ideally, you should be able to take advantage of a sign-up bonus. For example, if your project will cost $5,000, then meeting a $3,000 spend requirement within three months would be easily doable. In many cases, you can get a few hundred dollars back by meeting that requirement, which would exceed the 1 percent discount that was mentioned.

The biggest drawback of this method is that if you aren’t careful, you could end up in a credit card debt trap. Credit card debt can sneak up on you and result in high-interest charges, especially if you have bad credit and higher APRs. Before using this method, make sure you have a clear plan for paying that balance down.

Dipping into a Home Equity Loan or Line of Credit

Because the equity in your house secures this type of loan, you may be able to get a good interest rate if you have enough capital and a good credit score. You have the option to take out either a loan or dip into a line of credit; your home would secure both as collateral.

And if you have a lot of home improvement projects or a big one that is costly, you may be able to tap into a large amount of money, depending upon how much equity you have. The main benefits to choosing this option include:

  • Flexibility – You have the opportunity to use a line of credit, covering your expenses as they come.
  • Low cost – You may be able to get a low-interest rate through collateral.
  • Accessibility – Oftentimes, you can work with your current mortgage lender, making things easy.

The major drawback to using home equity loans is that you put your equity at risk if you fall behind on your payments. Also, you should be aware that closing costs on these loans can sometimes be expensive.

Taking Out a Personal Loan

Some people turn to personal loans when they need money for home improvement projects. And the appeal is easy to see.

They allow you to get your hands on the money quickly, sometimes in just a matter of days. If you shop around and have excellent credit, you may score low-interest rates. And the repayment terms are usually simple and easy to understand, with some companies waiving pre-payment penalties if you want to pay that loan back early. You have the option pick between a secured and unsecured loan.

There are many companies in the personal loan industry, and they make their applications quick to fill out and available online so you don’t have to step foot in a real bank.

The biggest problem with personal loans for home improvement projects is that the repayment periods usually aren’t long. You might be looking at a repayment period of one to five years, which could amount to a sizable monthly payment.

Also, if you don’t have a solid credit score, you might not qualify for a reasonable rate. If that’s the case, those high APRs might make this a much less attractive option for you, especially if you’re trying to cover a high-cost project.

Rely On Cash-Out Refinancing

With a cash-out refinance, you’ll refinance your house loan for a larger amount than it currently is. You’ll get the additional amount in cash from your equity. So if you still owe $80,000 on your current home mortgage that appraises for $120,000, you could refinance a mortgage for the full $120,000 and take the remaining $40,000 in cash.

You might have enough to do all the home improvement projects you want if there’s enough equity built up. Depending upon how many years are left on your current mortgage and what your rates were when you first financed it, you may be able to have a similar-sized payment for your new mortgage as you did for your old one.

That can be an attractive option for someone who doesn’t have the wiggle room in their budget for an extra monthly payment.

The biggest downfall to this method is that you could potentially owe years more on a mortgage that you had already partially paid down.


By Andrew from LendEDU – an authority in consumer finance education. Check out the blog to learn about various different topics in personal finance.

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