Repairing and renovating your home could turn out to be an expensive affair. However, it is not something you could avoid or negotiate upon because the stakes involved are high. Every homeowner should make it a point to invest in the maintenance and repair of every part of their home at least twice a year. And once every few years, you might have to invest in the renovation and restoration of the home to check and fix any structural damages. And with the COVID-19 pandemic forcing all of us to stay at home all day long, home improvement is becoming a priority for many!
However, all this could prove to be an expensive affair. So, is there a way to avoid these expenses? Well, the answer to that is no! However, there is one thing you could do to reduce the burden of the renovation expenses on your pocket. You can get a loan or financial assistance to fund the repair works. Here is how you could go ahead with it!
Home Equity Loan
You could apply for a home equity loan to fund your renovation projects. Home equity loans or a second mortgage are possible when you have at least 20 percent of the equity in your home. This means the loan-to-value ratio has to be 80 percent or less. Most lenders would give you this money in a lump sum, and you would have to foot the costs like loan processing fees, closing costs, origination fees, etc., just as in the case of your first mortgage. This means you would have to pay an additional two to five percent over the loan amount.
You can repay this every month over a few years. As the repayment dates for the first mortgage and the second mortgage could be different, it would help if you used an amortization schedule that would keep you on track with all the payment dates and amounts for the entire duration of the loan. Remember, if you miss payments, the lender could assume ownership of the home. So, never miss a payment!
If getting a second mortgage does not seem like the right thing to do, you could always look in other directions. One such option that you have is to apply for a personal loan. Numerous banks and private lenders let you take a personal loan for small expenses and life needs. These are easy to find, process faster, and easy to shop around. Personal loans also have a relatively low rate of interest in comparison to a home equity loan. However, we cannot say for sure that the interest rate could differ based on your creditworthiness and your debt repayment history. If you have a great credit score, going for a low-interest personal loan would be an ideal way to finance your small and medium-size home renovation. A few contractors would have tie-ups with lenders and could arrange a personal loan for you too. So, it would help if you check those options as well.
This is a home equity loan that is secured by your home. Does it not make sense? Well, let us explain. HELOC is a home equity line of credit where the lender gives you a loan by pledging your home or using it as collateral. In this type of loan, the lender would be willing to lend you as much as you want for the renovation work. This is because the non-repayment of the loan would mean that the lender could take possession of your home. As the risk involved in this loan type is very less, the chances of you scoring a low interest rate are high. Besides that, it could also help you boost your credit report, so you could consider this as a reliable way to finance your home renovation project!
If you are going for just minor repairs around the home and not an entire renovation, you could always pay for it with your cards. However, try to use one of your credit cards that have the lowest interest rate. That way, you could renovate or repair your home without burning a hole in your pocket. Credit card repayments can be converted into an EMI, which means that you would not have to repay the whole sum in one go. Instead, you could schedule the payments to a minimum amount over several weeks or months. Using a credit card will be a wiser choice if you are in the introductory period of usage. You have a zero percent interest rate on the spend because you will only have to pay for what you use and not an additional interest.
Use Your Savings
A renovation, unlike a repair, does not come as a surprise. You have ample time to plan it, get quotes from various professionals, compare them, and decide on a budget. You could use this time to pool in your savings, save some additional money, and get started on the renovation funds. If it is small repairs that you are looking at, which wouldn’t cost you a fortune, or you have over a year or six months to work on the home improvement project, funding it out of your pocket is feasible. Even if the renovation needs to be done over the next few months, you could use the money in your savings to pay for the bills. This would prevent the need to run around filling applications, paying closing fees, dealing with the hassles of loans, repayment, interest, etc.
Do make sure you evaluate the pros and cons of each one of these methods before you pick one. Remember there is no one right financing option and it changes based on your needs, financial stability, and creditworthiness.
So, which of these options are you considering for your home improvement project? Do let us know in the comments section. And don’t forget to mention why you chose it over the rest. It would definitely help our fellow readers to make an informed decision!