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Home Improvement Projects |
How to Finance Your Home Improvement Project
By Sarah Clark
Home Improvement Ideas Columnist
If you're considering a home improvement project, you'll want to know what financing options are available, such as home improvement and mortgage refinance loans. The National Association of Home Builders (NAHB) provides information to consumers on types of financing available to homeowners for home renovation projects.
First, the NAHB notes on its Web site that cash may be a good way to finance your home remodeling project. Before spending your cash, however, make sure you can't invest your money at a higher interest rate than what you could get on a loan to remodel your home. Additionally, interest paid on a home improvement loan may be tax deductible while cash spent on a home improvement project is not.
If you don't have the cash on hand, or decide it's not the best way to finance your project, here are a few other options worth considering.
Home improvement loans
A couple of home improvement loans are administered by the Federal Housing Administration (FHA), known as Title I and Section 203(k) programs. With a Title 1 loan, you can borrow up to $25,000 for improvements to a single-family home. Section 203 (k) loans are for the acquisition and renovation of a home; it is a long-term loan at a fixed or adjustable rate.
Home equity line of credit
Home equity lines of credit are a type of revolving credit in which your home is used as collateral against the loan. Based on your credit history, you may be able to get 70 to 80 percent of the value of your home minus the balance of your first mortgage. Home equity lines of credit interest rates are usually variable.
Home equity loan
A home equity loan, or second mortgage, have fixed terms and rates that are based on the amount of equity in your home. Fixed monthly payments are made over a specified period to repay the loan.
Refinance your home loan
Another alternative is to refinance your home and use the new loan to repay the old mortgage and take the accumulated equity out as cash. It makes sense to refinance your mortgage if finance rates are lower now than they were when you took out your existing mortgage.
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About the Author
Sarah Clark is a freelance writer based in Arlington, Virginia.
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