Home improvement financing can provide you with the money you need to remodel your home or perform regular maintenance, whether you are interested in a small project or major renovation.
About Home Improvement Financing
To keep your home - your largest investment - in good working order or to increase its value, making home improvements may be necessary. Depending on what needs to be done, home improvements can be expensive. If you don't have the cash you need, you will have to look into home improvement financing.
Financing is relatively easy to obtain, especially if you are a homeowner. In fact, you may have several different options available to you.
Home Equity Loans
As you make mortgage payments, you reduce the amount of money that you owe on your home. At the same time, you build equity. The amount of equity that your home has depends on how much your home is worth and how much you still owe on the mortgage balance. For example, if your home is worth $100,000, and you only owe $60,000 on the home, then you have $40,000 in home equity.
A home equity loan is an attractive option for anyone who needs home improvement financing. Instead of borrowing money from the bank, you borrow from the equity that has built up in your home. You must still make a bank payment, but the loan is more like a second mortgage than anything else. Your home is the collateral.
There are many advantages to using home equity loans to make home improvements:
- Home equity loans typically have low interest rates.
- Home equity loans are relatively easy to obtain.
- You can use between 80 and 125 percent of the equity that you have built up in your home.
- The interest paid on a home equity loan is usually tax deductible.
- You can get short loan terms or long loan terms.
- A home equity loan can provide you with cash in as little as five days.
Home Equity Line of Credit
A home equity line of credit is another home improvement financing option worth looking into. Much like a home equity loan, a home equity line of credit allows you to borrow money from the equity in your home. The difference is that you do not have to take the money in one lump sum. With a home equity line of credit, you are approved for a specific amount of credit and can then make withdrawals up to this amount. You are then only required to pay back the funds that you borrowed.
This option also has many advantages:
- You only have to borrow what you need.
- Flexibility. If you estimate the cost of home improvements, but then go over on your budget, there is no need to fret.
- Home equity lines of credit have low interest rates and interest payments are often tax deductible.
Cash-out refinancing also borrows from the equity in your home. However, this is where the similarities end. With a cash-out refinance, you refinance your first mortgage for more than you owe and get cash back at closing. This type of financing option has recently become very popular.
Here are some of the advantages of cash-out refinancing:
- Interest rates are very low-often lower than the rates for home equity loans or home equity lines of credit.
- You can normally choose between two different loan term options: 15 years or 30 years.
Shopping for Home Improvement Financing
No matter which financing option you choose, you will want to shop around to make sure that you get the best deal possible. Take time to compare lenders, interest rates, lending fees, and loan terms and conditions. The amount that you pay in rates and fees can significantly impact the total cost of your loan and the home improvements that you make.