How am I supposed to finance this home renovation project?
Outdated kitchen. Overrun backyard. Unusable basement space. If you’re looking to finance a home renovation, here are some of the most common options to make your dreams a reality.
Paying in cash is the most straightforward financing option. Save up until you have enough money to cover the expenses. This will help eliminate spending outside your budget, however, it can also extend your timeline.
If you’ve been making payments on your home for a few years and your interest rate is higher than current market rates, you could qualify for a mortgage refinance. This will reduce your payments and free up some money.
A cash-out refinance replaces your existing mortgage with a new home loan for more than you owe on your house. The difference goes to you in cash and you can spend it on home improvements. You must have equity built up in your house to use a cash-out refinance. This option is encouraged only when you’re making improvements.
Home Equity Line of Credit
Obtaining a home equity line of credit allows you to borrow money against the value of your home. You receive up to 80 percent of your home’s value, minus the amount of your loan.
Pulling money from a 401K or IRA account is another way even though they aren’t specifically meant to cover a home renovation. This option might incur additional penalties or tax payments. It might be worth it when making improvements that will benefit that will increase the value of your home in the long run.