First Thing’s First: Finance Your Remodel

From on April 07, 2008 in General

As we’ve been discussing in depth lately, remodeling your home is almost always an advantageous venture. One of the first steps in the process is to obtain financing. There are plenty of options to accommodate whatever your financial situation may be.

  1. Save the money. Perhaps the most cost effective way to finance a remodel is to use your own funds. Unless you tap into your savings or investment accounts, many don’t have thousands readily available. Consider, however, how you can possibly pinch a bit here and there to come up with as much money as possible. Try eliminating one meal out a week, or that daily $3.50 cup of coffee. Over a month’s time that equals $105. Reduce your gas expenditures by combining trips, walking more, or riding bikes. (Get in shape at the same time!) Maybe you can rearrange your vacation plans a bit; save the more elaborate trip for next year and just visit family this year. These are just a few examples of how you can be resourceful to save the fees and interest associated with borrowing money. Furthermore, with the uncertain economy right now, avoiding unnecessary debt is always a wise move. A lesson many of us learned as children; saving for something special is always more rewarding than just having money handed to you that you have to pay back with interest!
  2. Obtain private financing. You may be surprised to discover how many of your friends and family may be interested in lending you the money with interest. Banks are only offering a measly 3.34% on cds, and an even lower rate for savings accounts. If you offer any rate higher than that, you will present an appealing opportunity for someone. Obviously, it is a higher risk investment than a bank, but just adjust the interest rate accordingly. As long as you write it up as a business transaction, complete with monthly payments and a length of loan, you should have no problems. Taking this route will allow you to avoid loan fees.
  3. Use a credit card. Maybe it’s time to start paying closer attention to those pesky credit card offers that you’re always throwing away as they arrive in the mail. If you have a good credit score, you may be able to get a no-fee, low interest rate card. Be sure to make sure the rate is locked in for plenty of time; some of those cards will jump to a horrendous rate within a short period of time.
  4. Obtain an equity line of credit. A lending institution will assess the value of your home through an appraisal. They will subtract what you owe from this amount and that determines the equity in your home. They will then lend you a percentage of this amount in an equity line of credit. Many institutions offer this loan without charging any fees, and with a fairly low interest rate. Bank of America is offering one such program right now for up to $500,000.
  5. Check into Government Loans. The government offers some incentives for homeowners to renovate through two lending programs: the 203K Loan and the FHA Title 1 Loan. As with most government funded programs, there is certain criteria you must meet in order to qualify. Check it out, you may qualify for more than you expect.

Don’t allow financial concerns to impede your renovation progress. Talk to your bank, mortgage company, or financial advisor and discuss which options are available to you. There are other loans you can obtain as well, such as a general construction loan. With the reduced demand for new construction, many contractors have more time right now and have lowered their rates. What better time to tackle a remodel project?