Are you interested in tackling a home renovation project, but unsure of how to fund it? Are you concerned about biting off more than you can chew in regards to your budget?
As a general rule of thumb, you shouldn’t do anything until you have a clear idea of how much your project will cost. There are two ways to figure this out:
- If it’s a DIY project, tally up the cost of all the material needed to complete it
- If you’re hiring a contractor, request three to five quotes from reputable providers in your area
Either way, you’ll end up with a clear idea of how much money you need to do the project the right way.
And that will lead you to an important question: how will you fund the project?
This depends on a variety of factors, including your current financial circumstances and future goals.
For example, if you comfortably have enough money in the bank to pay for the project in full, it may be the right approach.
Conversely, if you need to borrow the money, you’ll want to keep an open mind as there are many options to choose from. Here are a few:
1. Home Equity Loan or Line of Credit
If you have equity in your home, you can tap into it to secure the funds necessary for your project.
One of the primary benefits of a home equity loan or line of credit is the competitive interest rate, which is primarily related to the fact that you’re putting your home up as collateral.
With a loan, you receive the funds upfront and repay the balance, plus interest, over the term.
With a line of credit, you’re able to use it and pay it back as many times as you want, in the same manner as a credit card.
2. Personal Loan
It shares many attributes with a home equity loan, but there are some key differences:
- It’s an unsecured loan
- It typically has a higher interest rate
- It’s more difficult to qualify for, as there’s no collateral
On the plus side, a personal loan is fast to secure, you can typically borrow up to $50k (and maybe even $100k with some lenders), and you don’t have to risk anything by way of collateral.
3. Credit Card
It’s not typically the best choice, especially for a large home renovation project, but it’s an idea that should at least garner some of your attention.
For example, you could combine a credit card with cash on hand to complete your project. In this case, you don’t have to deal with a loan application and waiting for approval. You can simply dive right in.
These are just a few of the better payment methods to consider when taking on a home renovation project.
Once you compare the finer details of each option, you can make a final decision as to which one is best for you now, without the potential to hinder your financial growth in the future.