From Dean on July 20th, 2007 in General Remodel
When contemplating a home remodeling project, the first thing you will need to determine is what the project will cost. Next, is how you will pay for it. Assuming you have done all of your deliberating about the absolute necessity of the remodeling project, there are a number of ways you can finance the project.
But, before we go into those, let’s quickly visit the ideas put forth by Trent Hamm on his Web site called The Simple Dollar. Mr. Hamm offers a formula one should use to set up a home improvement fund: 2% of the assessed value of the home, or one sixth of 1% to $333 a month for a $200,000 house. In order to save up for a $50,000 kitchen remodeling project using Mr. Hamm’s formula one would need to save $333 a month for nearly a decade if the fund was invested at 5%.
The fact is, most home remodeling projects, especially popular home improvements like bathrooms and kitchens, have substantial long-term returns in areas such as quality of life, increased resale value, and lower energy costs. Leaving Mr. Hamm’s approach to the very patient person, who is in no hurry to enjoy the multitude of benefits to be derived from a cutting edge remodeling project, let’s move on to some ways that work better for those of us who aren’t quite so patient.
In addition to a table describing various conventional bank loan types, including both short term and long-term loans, one Web site, Keller Williams Realty, offers some solid advice about “leveraging payback” on a remodeling project.
“The rule of thumb for financing home improvements,” according to Jim Messenger, “is to match the loan type to the estimated resale value of the project. This means taking out short-term loans for projects that don’t add significant value to the house, and securing long-term financing for improvements with definite payback value, such as remodeling a kitchen or bathroom or adding an additional bathroom.”
Another type of loan, a Contractor’s Loan, which is set up with a bank that the contractor works with, might sound good at first, but be careful to make sure that the terms are favorable. Often they are not.
Refinancing and taking out second mortgages are two of the most popular ways of financing home remodeling when interest rates are low. If not, you should try other options. You should watch for excessive closing costs as well.
Home Equity Loans and Lines of Credit are other very popular ways to finance your home remodeling project. Both are based on the difference between the equity you have in your home and how much you still owe on it. These can be excellent sources of financing.
Another online article, called “Smart and Stupid Ways to Pay for Your Remodel” offers a wealth of sound advice about financing your remodeling project. CalFinder recommends that excellent article to avoid the pitfalls that those seeking financing for home remodeling might encounter.
For Green Building services in the Humboldt area visit the Alternative Building Services Blog.
[tags]remodeling, remodeling quote, remodel, remodel financing[/tags]