Paying for Home Improvements? The 8 Safest Financing Options

From on June 16, 2010 in Remodeling News

remodel finance dollar signDiscussions of finances are neither fun nor optimistic, especially if you’re looking to take out a hefty loan on a major home improvement. Despite the distressing information, it needs to be talked about. Rather than contribute to the dismay, here are the best options for getting that much-needed loan for your much-anticipated home improvement project.

#1 – Pay with cash.

Cash is by far the best way to pay for anything. In the financial climate of 2010, most renovation-eager homeowners are opting for the cash method. It frees you of the headache of debt, soaring interest rates and scary losses. Look at your cash resources before considering anything below this line.

#2 – Pay with a credit card.

remodel finance credit card

That little piece of plastic in your wallet is powerful—enough to help you fix up your home. On the negative side, it’s powerful enough to slam you with debt for years. Keep in mind that credit card interest rates hover around the 30-percent neighborhood. Five years from now, you may be paying through the nose and wishing you hadn’t renovated your kitchen.

#3 – Personal loan.

Sit down with a loan officer at your local bank. Personal loans are an interesting option (sometimes lower interest rates), but are still a small market. Few people immediately think “personal loan!” when they faced with a financial need, probably because they’re hard to get. If you have a good personal relationship with your bank, there is a better chance you can nab a personal loan.

#4 Take out a home equity loan.

Since the fiasco, everyone has ratcheted up the restrictions on home equity loans. If you expect to gain a home equity loan, you’ll need to make sure your credit score is near-perfect. A good home equity loan will offer about 90 percent of your home’s value.

#5 – Home equity line of credit.

remodel finance home equity credit

The home equity line of credit, otherwise known as HELOC, is another home equity hybrid. Unlike the home equity loan, however, which unloads a whole lump of cash, the HELOC slowly sifts the money to you as needed. Like most loans, the HELOC is available as an adjustable loan or a fixed-rate loan. Beware the adjustable rate!

#6 – Cash-out refinancing.

The cash-out refinancing option is not used very often. What it offers is some equity financing and a loan. The cash-out side of the equation sounds really good. Who says no to cash? However, unless you can really land a stellar interest rate, the option doesn’t turn out to be that great in the grand scheme of things.

#7 – FHA remodeling loan.

The FHA doesn’t hand out loans to anyone and everyone. When they do, however, amounts are usually small, and the security is pretty high (your home). The downside? The FHA stipulates what you can use the money for.

#8 – Contractor loans.

Sometimes, the crew that does your bathroom renovation may also offer a way to pay for it. Contractor loans are appealing for their one-stop-shop way to deal with the financing plus renovation. The interest rates may not be all that bad, either. Be sure to ask all the questions—rate, adjustability, points, and fees.

It’s still possible to pay for that home improvement you’ve been hoping for, but the stakes are a bit higher and the options narrower. Nonetheless, you’ll probably be able to find financing that suits your situation.

Photo Credit: brooklyn green, BlogHer & boozwatt