5 Ways To Finance a Home Renovation on a Budget

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(Newswire.net — November 15, 2022) — Whether you’re looking to increase the value of your home or beautify your house, financing for a home renovation can be a little tricky, especially the funding part. Luckily for us, we don’t have to go to the bank anymore to get a home renovation loan.

Nowadays, there are a lot of ways for you to fund your home renovation, whether it be a huge or small project. Here are some of them.

Equity Financing

If you already have equity in your house, it’s only natural to get financing from your house equity to renovate it. Equity financing is affordable regarding interest rates, not to mention that they are tax-deductible if you use your equity for home improvements, which is a huge plus.

With equity financing, a lender will require a home appraisal to determine how much your equity is worth and the remaining balance you have for your house. Once that’s done, and you are approved for credit, you can choose either a home equity loan or a home equity line of credit or HELOC.

A home equity line of credit or HELOC can be 85% of your home’s value without the balance you still have to pay. The interest rate is variable, which means your monthly interest can change as the rate changes. Typically, you have ten years to spend on your credit and 20 more years to pay for it. However, it depends on the lender, as some lets you borrow a specific amount from your line of credit and lets you pay for it immediately after.

On the other hand, a home equity loan works just like a regular loan. The amount is also calculated just like a HELOC, but you’ll get a lump sum and pay it off afterward. Home equity loans typically have fixed interest rates, but you can also opt for a variable one. 

It’s important to note that both of these financing options require you to put up your house as collateral, which means that if you can’t pay them, your equity might be in danger.

Personal Loans

If your home renovation project is small, you can opt for a personal loan. The best thing about personal loans is that they are typically easy to apply for. The application can be filled out and approved the same day, and you can get your money as fast as the next day. However, one thing about them is that they are typically higher in terms of interest rates but not higher than the ones you get from credit cards.

Repayments on most personal loans can take up to two to seven years. With shorter terms, you’ll get much bigger monthly payments, while longer terms tend to have smaller monthly payments, but you’ll be paying a lot of interest in the long run. You might want to consider reno loans, which are a type of unsecured loan. 

What Is a Reno Loan Used For

It’s typically used for emergency renovations or home improvements. You can also opt for this loan if you’re looking for financing for a home renovation project.

Credit Cards

If you’re not into loans and want to opt for a line of credit, you can opt for a credit card. Credit cards are convenient if your home renovation project is on the small side but you aren’t exactly sure of the whole cost of the project. 

If you want credit cards, you might want to look for one with 0% APR, which means that you can pay for your balances without incurring interest over some time. This allows you to borrow within your borrowing limit and pay them back without interest.

FHA 203(k) Mortgage

An FHA-insured loan lets you refinance your first mortgage by combining it with your renovation costs into a new loan. Once your renovations are complete, your new mortgage will be calculated based on the value of your original property and the amount you need for your renovations. The average loan term of this type of mortgage is 30 years, depending on the lender you got it from.

VA Cash-Out Refinance Loan

If you’re a veteran, you can get this loan from private lenders and approved by the Department of Veteran Affairs. This loan allows veterans or active duty members to refinance their old mortgages with new loans and use the difference to pay for the renovations. The amount you can borrow depends on your credit score and VA benefits.

Final Words

A home renovation is never cheap, which is why most people look for financing whenever they want to do a home project. Luckily, there are a lot of ways to fund home renovations nowadays. Make sure to pick the one you’re comfortable with and make sure you can pay back the credit you’re approved with.