Typically, when you want a home renovation project, you already know where you’re going to get the money. If you are planning a home remodeling without knowing where to get the money, then you should think about how you’re going to go about the project. There are plenty of ways you can raise the fund you need. The most common way to raise funds is to take out a loan, but there are other things you can do, too, if the project is that important to you.
Unless you absolutely need to renovate your home, you should set the plan aside if you don’t have a steady cash flow to shoulder the repayments for mortgage refinancing, personal loans, credit cards, and other things. A home remodeling can usually wait for a couple of months, unless there was sudden water damage or your roof caved in. But if it’s for aesthetic purposes, make sure you’re in a financially sound status before diving into an expensive home project.
Home Refinancing
Is your house still under mortgage? You can secure another mortgage on top of an existing one. But remember that since you’re doing that, you will only be able to borrow a small amount of money. Usually, it is based on the value of your home after the balance of the first mortgage is deducted. The upside to this is that the interest loan is fixed and tax-deductible.
Cash and Liquid Assets
The best way to fund any of your projects is to use your savings. This is money readily available and you will not be indebted to anyone. It is already in your account. You only have to write the check or withdraw from the nearest ATM. However, you will deplete your cash reserves. You might have to pull out some money from your emergency fund.
If you have properties you can liquidate, that’s another great way to raise money. You can put another property for sale and use the proceeds to improve your home. Do you have stocks or bonds near maturity? Then, you can sell those stocks or wait to withdraw the bonds after maturity, so you can have the money you need.
Sweat Equity
What’s the most expensive part of a home improvement project? It’s the labor costs. You have to pay the workers a per-hour rate. That usually costs about $100 per person each day. Even if the project is under contract, it will still cost you hundreds, if not thousands of dollars. Thankfully, you can call for reinforcements. Is there anyone willing to help you with your project? Perhaps, there’s a friend who’s quite handy around the house and will accept pizza and beer as payment?
The only downside to this is that you still have to pay for the materials. Of course, if your friend is a professional, paying for the materials is a small problem. Make sure to ask help from someone who knows what needs to be done. If both of you are going to learn “as you go,” then it might be cheaper to hire professionals.
Credit Card
Your project can cost anywhere from a few hundred dollars to tens of thousands of dollars. Most home improvement retailers accept credit cards as payment. The interest is quite high but if you can pay it off in a few months, this is also a great way to get the money you need right now. Also, you are not forced to pay off an exact amount every month. As long as you settle the minimum amount due, you can wait until you have enough money to pay off the balance.
Personal Loans
Are you comfortable borrowing money from a friend or a family member? They will not ask for your home as collateral. That means that even if you fail to pay it on time, your house is not at risk of foreclosure. They may feel uncomfortable imposing an interest fee on the money you borrowed. That’s a plus for you. However, offer to pay a small interest, especially if it will take a long time for you to pay it back. There’s nothing worse than ruining relationships because of money.
Retirement Account
Some employer retirement accounts allow you to withdraw from it for home improvement. It has low-interest rates and you don’t have to pay extra fees for the loan. The only problem with this is that you have to pay the outstanding balance of the loan if you resign from the company. Also, you will have less in your retirement account than if you didn’t withdraw a portion of the money.
Unless you are paying with your own savings, you should think about how you’re raising the funds for your home improvement project. There are many practical options for you, but that doesn’t mean they don’t come with some drawbacks. Check the terms and conditions of each loan. Clarify items that are unclear to you. And of course, always make sure you’re capable to pay off the loans.