These days, home renovation and repair projects are commanding higher spending costs. The share of homeowners spending $50,000 or more increased in 2022 to 32% versus 26% in 2021. As a result of these increases, homeowners are relying on diverse funding methods.
If you’re planning a major home renovation in 2023 or beyond but are unsure how to finance it, this is the blog for you. Let’s explore six ways you can finance your home repair or renovation when cash from savings isn’t an option:
1. Home Equity Line of Credit
If you have built up equity in your home, consider tapping into it with a home equity line of credit (or HELOC), which allows you to borrow against the value of your home and pay back only what you use. The interest rates are typically lower than credit cards and personal loans.
2. Use Your Mortgage
If buying a new home, consider adding renovation costs to your mortgage repayments. Alternatively, when it comes time to refinance your mortgage, add the renovation cost to your existing mortgage. Homeowners may be able to secure lower interest rates and monthly payments than an unsecured loan.
3. Unsecured Line of Credit
If a HELOC or refinancing are not viable options, you can explore an unsecured line of credit, which could provide flexibility in borrowing and repayment. One drawback of this option is the presence of high interest rates. Personal lines of credit typically carry higher interest rates than mortgages because they lack collateral or security.
4. Take Out a Second Mortgage
Some homeowners take out a second mortgage to fund their home renovations. This option provides immediate cash at a lower interest rate than a personal line of credit, but it does mean having two mortgage payments.
5. Credit Card
A credit card may not be ideal due to high interest rates, but it is an option for financing home renovations. Be cautious and consider using a credit card for smaller projects that you can pay off quickly to avoid accumulating high interest charges.
6. Loan from Family or Friends
If you have the option, borrowing from family or friends for your renovation or remodel may be a viable choice. Ensure you establish clear repayment terms to avoid straining relationships.
Consider these financing options carefully, and choose the one that best suits your financial situation and renovation needs. Remember, if time allows, saving and paying as you go is a wise option. It eliminates the need to borrow and ensures you won’t be burdened with debt once renovations are complete.