Tips On Financing Your Home Improvement Project
Any renovation of your home can run into a substantial cost. Most homeowners either don't have that amount of money laying around or prefer to finance the project from the equity in their home. Loans are often used as a means of financing the upgrades.
In general the best home improvement projects are those that increase the value of your property through repairs or upgrades. Pretty much any action taken to increase the expected sales value of a home would fall into that classification.
These are the typical ways that a homeowner will raise money.
First Mortgage
- Depending upon the size of the renovation and the equity in the home, a lot of people raise the funds by refinancing their first mortgage. Some new homeowners will wrap the money for renovation of their new home to the actual first mortgage. This type of loan will often be designed to allow the homeowner to draw against a pre-specified amount to pay for the repairs or upgrades as the work progresses.
Second Mortgage
- Many times a home owner will not want to refinance their first because of beneficial terms or conditions. In that case many people can use a second mortgage to obtain the desired funds if there is adequate equity in their home.
Unsecured Loans
- Unsecured loans from family, friends or by using a home improvement credit card are other avenues often used by many homeowners. Most times when a credit card is used it is for a DIY home renovation and is used to strictly pay for materials. Most Home Building Supply companies issue this type of card.
Before you can decide on the best type of financing for your project you need to create a detailed plan for the improvements including a calculation of the actual costs for both material and any hired labor.
Make sure that you include a fudge factor. This is an extra amount to cover unexpected expenses that will crop up in any renovation. It will also be handy to have an estimate of how the improvement will increase the value of your home. To be successful in getting the required funds you should start by asking yourself several questions.
- Are the improvement going to increase the value of your home more than the loan amount?
- What are the estimated monthly payments and are they affordable?
- Are there going to be tax consequences?
Finally, make sure that you use some type of method to track the expenses so that you stay on budget. It is extremely easy to have a little extra here and there suddenly become a whole lot of red.
