For most of us, our remodel project won't be featured (or paid for) by HGTV. Since remodeling takes a lot of time AND, potentially, a lot of money, it's important to put some thought into how you're going to pay for your project before you get underway on the physical work. Here are a few ideas to get you started.
Financing for Smaller Projects
And by smaller, we're talking about remodeling a dining room or bedroom, or adding light fixtures, new floors, fresh paint or upgrading an appliance or two.
In general, we believe avoiding using a credit card for major purchases unless you have the funds in your bank account to pay it off, as credit cards generally come with a higher interest rate and more significant late fees. But for small weekend projects, a low-interest credit card may be the best fit.
You can use a low-interest card that you currently have or apply for a new one. Several providers offer a low introductory rate for a specified amount of time (just be sure to pay off the balance in full before the introductory rate ends to avoid paying higher interest rates).
Home Equity Lines of Credit
When deciding how to fund your project, look at interest rate. How much are you being charged to borrow from your credit card? Chances are it's somewhere between 12-24%. Rates for a home equity line of credit (HELOC) are much, much lower— check out current rates here. Big or small, you'll pay less in interest if you utilize a HELOC instead.
So how does a HELOC work exactly? It's a loan that is underwritten using your current home's value, so you will need to have some existing equity in your home in order to qualify. With a HELOC, you'll apply for and be approved for a certain maximum amount. From there, you can draw out and use only what you need. Expect to make interest-only monthly payments during a draw period, followed by principal-and-interest payments over the remaining term.
Talk to your neighborhood loan officer to find out if a HELOC might be right for you and your project. (Just like other loans, all HELOCs are subject to credit approval).
What about larger projects?
The cost associated with adding a bathroom, knocking down walls, or finishing a basement will likely be more than a credit card, or HELOC can finance. Extensive remodeling can out strip the available equity in your home, especially if system upgrades or major structural work are in your plans. (For example, adding a second story can easily set you back over $20,000, but you may only have $10,000 worth of equity in your home.) For major projects, our All-in-One Remodeling Loan may be your answer. More on that below!
All-in-One Construction Remodeling Loans
Our All-in-One Construction Remodeling Loan is a home loan based on the estimated value of your home after the remodel. To determine that value up-front, we order an appraisal based on your plans for improvements. The entire project is underwritten at one time and you can lock in a permanent, fixed interest rate before you even start the project.
During the remodeling project, you draw funds as work is done and make interest-only payments during the construction phase. Monthly draws from your total loan amount are released to you based on the percentage of completion.
When the project is finished, the loan automatically converts to a standard mortgage. The mortgage is a fully amortizing loan with principal and interest payments spread over 15 or 30 years.
Please note that rates can change daily. Subject to credit approval and a lock-in deposit. Restrictions and limitations may apply.