Many homeowners in The Triangle are choosing to renovate their homes this Spring. Where home prices are still high and inventory is low, making renovations can be a popular alternative to moving. However, home renovations tend to be more costly right now due to still high material and labor costs and not everyone has the disposable income for extensive renovations. Additionally good, dependable contractors may be booked 6-12 months out so it could take longer than you might like to get your renovations completed. Financing home renovations is one way to make necessary renovations, without a large capital outlay upfront. Here are some of the best financing options for home renovations.
Home Equity Loan
Home equity is the difference between the amount of money borrowed against the home value. If your home is worth $400,000 and you owe $200,000 on your mortgage, then you have $200,000 in home equity. Lenders will let you borrow on your home equity to make renovations. Like a personal loan, you borrow at a fixed rate and pay the loan back over time in installments, however, the loan is tied to the home. It is easier to qualify for a loan when you have an asset tied to it because it is less risky for the lender. If you have poor credit, this is a good option, however be careful that the lending rates are affordable because if you fall behind, you could lose the home in total.
Home Equity Line of Credit
A Home Equity Line of Credit or HELOC is another good option if your credit is not high enough for a personal loan. One of the advantages of a HELOC over a Home Equity Loan is that you can borrow against your home equity, but not commit to a lump sum. You have access to a fixed sum and can take withdrawals over a period of time. Interest is calculated on the amount you've withdrawn, in other words until you actually spend the money there's no cost involved. This isn't the case with a Home Equity Loan where the interest starts accruing from the moment you close on the loan whether you spend the money or not. This flexibility is great when you are unsure how much your renovations will cost, you have a larger line of credit but only need to withdraw what you need. The downside is that the rates of these lines of credit are usually variable. Your payments could rise over time if there is a rate increase and if you cannot afford payments, your home could be at risk.
Do you have great credit, but not a lot of expendable income? A personal loan is one way to finance a home renovation if you have excellent credit. It is important to factor in the cost of borrowing with inflation, so be careful when choosing the lender and pay attention to the rates of borrowing with a particular lender. You risk paying a lot more for a loan if the rate is high.
Whenever you are considering borrowing to make a home improvement, consider also if you want to sell your home in the next five years. There may be a perfect home around the block that does not require renovation that fits your needs better. Even if you are not 100% on buying or selling, meeting with a licensed, reputable and experienced Realtor can help you figure out your best options in regards to renovation decisions and future real estate needs. My NC Homes are experts in renovations and real estate, we would be happy to consult on your particular needs. Contact My NC Homes today.Posted by Larry Tollen on
Leave A Comment