How to Pay for Your Remodel without Home Equity Loans

From on February 10, 2010 in Tools and Tips

finance remodel wimpy“I’ll gladly pay you tomorrow for a hamburger today.” Remember that old line from Popeye’s friend, Wimpy? That may have been my earliest memory about credit and debt – and why you shouldn’t trust a hungry-moocher best friend. It’s true, we’ve been a nation crazed with borrowing more cash than we can realistically pay back. But when it comes to remodeling your home, there are better ways to raise the funds you need to improve your best asset.

For decades, homeowners have relied on home equity loans to finance home improvement projects. But with the housing market severely crippled, masses of homes now have negative equity, meaning that more is owed on the home than it’s worth. As a result of that, home equity loans and lines of credit have dried up since banks began tightening their restrictions on loan qualifications.

Luckily, the creative homeowner still has several options left, which are actually better in the long run anyway. Putting yourself into debt, or further debt, is always a dicey situation. If you want to tackle a home remodeling project, try one (or all) of these clever alternatives to debt:

Out with the Old, In with the New

We all have unwanted stuff lying around. An excellent way to raise capital is to start selling off those old items. Yard sales and flea markets won’t earn you much, so opt for buy & sell sites like eBay or Craigslist. finance remodel yard saleIf you’re wary about selling online, try your local want ads or sell directly to family, friends and neighbors.

It really works. Sarah Place, President of Place Trade Financial, a brokerage and financial advisory firm in Raleigh, N.C., made about $5,000 by selling her old sofas, exercise equipment and an old vehicle through Craigslist. That was money she badly needed for a $10,000 home improvement project.

On the flip side, you can find great used items for your project through garage sales, salvage yards, want ads and online sales sites. Buying used items is the best way to get unique or useful items at very low prices. Just because it’s new to you doesn’t mean you have to buy it new.

Plastic, But…

The goal here is to acquire no new debt. However, using credit cards or store charge cards can be a useful tool if handled properly.

If you can qualify for a credit card or store charge card that will fund your home improvement project interest-free long enough for you to pay off the balance before interest begins accruing, then you just might be in luck. The key here is to make monthly or even weekly payments through the interest-free period to ensure that you do not start acquiring interest fees, finance charges and other fees. Credit card debt has a way of snowballing out of control, so only use this option if you’re certain you can make it work to your advantage.

Another thing to look for here is an interest-free card that pays you cash back. You can use the refunds to help pay off the card even faster, thereby keeping yourself out of debt and garnering a small discount on your purchases.

The Good Old-Fashioned Way

finance remodel savingsThe best option of them all, of course, is the oldest trick in the book: a savings account. Start planning ahead. Determine what your project will cost and what your timeline is. I think we’ve all opened a savings account with the best of intentions and then closed it shortly after realizing we’re never actually going to deposit any money into it. It happens. Rarely does our income supersede our bills, but it is possible; it can be done.

The best method of saving money is advice you hear given to small business owners - pay yourself first. No matter what you owe to who, start by deducting 10 or 20 percent from your paycheck and set it aside in a savings account. Pay your bills and live off of what’s left. The hardest part here isn’t in the deposit, it’s in not making withdrawals.

If you keep it up, you’ll soon be in the habit of living on less money. You’ll learn to adjust and make your lifestyle work with the income you have left. The best part, though, is that you will watch your home improvement nest egg grow. Soon enough, you’ll be watching remodeling professionals transform your castle – and best of all, you’ll pay them cash.

Contractors love cash, but be smart about it. Give the smallest deposit you can get away with, never make the final payment until the project is completed to the agreed-upon terms, and always (especially when paying cash) get a receipt on the spot.

Handle the Small Jobs Yourself

Not every homeowner is a handy homeowner, but there are numerous ways to learn more about home improvement. By taking care of the prep work on your own, you can save thousands of dollars.

Many home improvement retail stores offer free demonstrations and classes on small remodeling projects, and always have qualified staff on-hand to answer questions. The internet can be a great source of information on remodeling as well. Everything from live chat rooms and question-and-answer forums to informational articles and how-to videos can be found on the web.

The key is to know what you can handle and what you can’t. Learn as much about your type of project and the tasks it entails, and then determine what you can reasonably do yourself. Be smart about this selection - you won’t be saving any money by hiring a professional to fix a botched job.

Photo Credit: SodaHead, BCAP Fund, & How To…