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The Best Ways to Finance Home Improvements

Posted by America's Credit Union on March 14, 2019
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Homeowners decide to improve their homes for many reasons. Some want to make their houses more comfortable or to add market value when they decide to sell. Others may seek improvements that will improve efficiency and safety.

No matter why you decide that it's time to invest in home improvements, you should compare financing options to decide which one works best in your situation.

The best financing option for your home improvement projects will depend upon your budget, credit, and personal preferences.


1. Save and Pay Cash


If you can pay cash for your expenses, you won't have to pay even more in financing charges. Being able to pay cash can also help you negotiate discounts with suppliers and contractors. However, you won't want to deplete your savings so much that you lack money for unexpected expenses. If you already have other high-interest debt, you might benefit from using spare cash to pay that off and getting a low-interest loan for your home improvements.


2. Use Your Home Equity


Home equity refers to the difference between your mortgage debt and the home's appraised value. It is calculated by taking 80% of the value and subtracting the existing debt from that figure; the result is the amount of equity you have available.

With qualifying credit, you can obtain a home equity loan to tap into this equity, often at a lower rate than other types of loans. A home equity loan such as this uses your home’s value as collateral for the loan.

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3. Personal Loans and Credit Cards


You won't need to use your home as collateral if you can finance your projects with a personal loan or a credit card. You also don't have to worry about the amount of equity that you have in your house. Remember that you will need good or excellent credit to get personal loans or credit cards with modest rates.


Choosing Home Improvement Projects That Add Value


Adding value to your home with improvement projects can be realized in more ways than one. For example, blocking off an open dining room for use as another bedroom may add value to your situation if the bedroom is sorely needed.

If you sell, however, it may not be as valuable to the next owner, as they may prefer a dining room and have no need for the extra bedroom. And, it may or may not add actual cash value to the home, so keep that in mind if undertaking such a project.

There are tried and true projects that normally tend to increase your value, though. Upgrades to bathrooms and kitchens and improvements in energy efficiency and comfort are typically on this list. Check with area lenders and realtors for further tips on these kinds of projects.


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Tags: Home and Mortgage, Mortgage Payment