Our House Magazine: 6 ways to finance a home improvement project
Excerpted from Our House Magazine
Six Ways to Finance Your Next Home Improvement Project
With consumer confidence returning and the real estate market beginning to rise, you might be thinking it’s time to tackle that long-planned home renovation project. You’re not alone. In fact, more than half of homeowners (57 percent) plan to spend money on home improvement projects this year, according to a recent SunTrust survey conducted by Harris Poll. Forty-three percent of surveyed homeowners plan to renovate outdoor areas, such as decks, pools and landscaping, followed by home maintenance for windows, HVAC systems or roofs (33 percent). Whether to increase space for a growing family, lower energy costs to reduce your carbon footprint, or perform routine maintenance for the upkeep of your home, renovations provide a myriad of long-term benefits for homeowners – but the price tag can be substantial.
So, how do you balance your budget without breaking the bank? With a number of options to consider, consumers need to match the type of financing to their individual circumstances in order to land the best deal.
Keeping your project scope, budget and financial situation in mind, consideration for financing your next home improvement or remodeling project may include:
- Home Equity Lines of Credit (HELOC)
A HELOC is a revolving credit line secured by the equity in a home and allows the borrower to access funds as needed up to the determined limit. It can take 4-6 weeks to secure a home equity line, and there may need to be an appraisal on your home to qualify. As a line of credit, payments are made on the amount that is actually borrowed, not the total amount available. A notable benefit is that mortgage interest, unlike other borrowing methods, is often tax deductible.* Plus as home values continue to rise, so may the amount of equity available to homeowners.
- Unsecured Personal Loan
For borrowers with good credit, an unsecured personal loan can be an attractive option. These loans are approved based on the borrower’s overall financial position and do not require collateral to secure the loan. Additional benefits may include lower, fixed interest rates, as well as the freedom to choose your service providers, products and materials. If you choose to explore an unsecured loan for your next home improvement project, take the time to compare your options to make sure you are getting the lowest possible rate and that the loan terms fit your repayment timeline. Also, investigate whether there are any other costs associated with your loan, as some lenders may charge application, account servicing, prepayment or other fees.
- Construction-To-Permanent Loans
Based on the scope and timeline of the renovation project, construction-to-permanent loans work directly with your contractor. This type of loan covers building costs and rolls into a mortgage once the project is complete. An added perk is that lenders often charge interest-only payments on the amount used, instead of the total amount.
- Sustainable Energy Incentive Programs
Homeowners looking to go green can take advantage of federal and state government tax incentives. From upgrading to Energy Star appliances, to adding solar panels or solar water heaters, these sustainable initiatives can help homeowners save money on utility bills by enabling them to finance the cost of adding energy efficiency features.
- Credit Cards
When used responsibly, credit cards can be another option in covering home renovation costs. Many credit card companies offer fraud protection, which may protect you from losses due to shoddy workmanship and materials. For borrowers with excellent credit, credit cards can offer lower rates with valuable rewards, including airline miles and hotel credits toward a vacation.
Perhaps the simplest solution lies within your savings account. If you have cash readily available, it may make the most sense to fund your home improvement out of pocket. If your money is tied up in investments that are delivering a significant rate of return or whose liquidation may have tax ramifications (such as a 401K account), you may want to investigate other financing options, which would allow you to keep your high performing assets intact. Even using cash in combination with another financing option can reduce the total borrowed, so you can get back to saving faster.
About the 2015 Home Improvement Survey
This survey was conducted online within the United States by Harris Poll on behalf of SunTrust from February 6-10, 2015, among 2,015 adults ages 18 and older (among which 1,279 are currently homeowners). This online survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated. For complete survey methodology, including weighting variables, please contact Julie.Olian@LightStream.com.
*For informational purposes, only. See a tax consultant in your area who is qualified to give professional advice.