6 Ways to Finance Your Home Improvement Projects

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Evaluating your home improvement funding options isn’t nearly as much fun as choosing cabinets or planning an addition. But thoughtful consideration to these options could help you get everything you want from your project. Use this home improvement financing guide to quickly evaluate your options.

1. Cash Reserves

Many homeowners tap their cash reserves to fund smaller home improvement projects. However, you’ll want to be sure you don’t drain your accounts to the point where you can’t cover any fiscal emergencies. Experts recommend having enough savings for six months of living expenses.

2. Credit Cards

Using a credit card is one of the easiest and most accepted forms of payment. Nearly all contractors accept credit cards, and it’s a great way to rack up reward points or frequent flyer miles. However, only use a credit card if you can pay off the balance right away to avoid costly finance charges. If you charge $10,000 and make minimum payments at 12 percent interest, it will take 25 years to repay the debt, and you’ll pay more than $9,000 in interest for that $10,000 charge.

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3. Cash-Out Refinance

The cash-out refinance option has helped millions of homeowners finance major home improvement projects by enabling them to tap into their home equity and refinance their existing mortgage into a larger one. With today’s interest rates, you could find that your monthly payment is lower—even after you include your project costs. However, there are many factors to consider before moving forward with a cash-out refinance. Talk to a licensed loan consultant to learn whether this option would work for your situation.

4. 203(k) Standard Loan

FHA’s 203(k) program combines a renovation loan with either a refinance of your current loan or a home purchase mortgage to fund major structural improvements, additions, or remodels.

5. 203(k) Streamline Loan

When your project will cost $35,000 or less and doesn’t include structural repairs, use a streamlined 203(k) loan to quickly tap into cash for minor property renovations or upgrades, including appliances.

6. Home Equity Loan/Line of Credit (HELOC)

Expect to pay a higher interest rate than on a refinance. A HELOC works best for those who have ample home equity. If your home value falls, the bank can shut down your line mid-project, leaving you without the funds to finish.

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