A home renovation can make your home more enjoyable to live in, may increase your home resale value, and make it easier to sell your home. Many homeowners are looking to renovate instead of selling their home since mortgage rates are still high, despite dipping recently. About 17% of homeowners are spending more on improvements this year, according to a survey by Today’s Homeowner.
If your home needs renovating, you may be looking to act now even though costs are up due to inflation. While the consumer-price index, a measure of inflation, moderated in January, the cost of floor coverings rose 13.1% and the prices of supplies, tools, and hardware went up by 11.8%, making home renovations. To cover the high cost of home improvements, some people are dipping into their savings accounts, but if that’s not an option, you might be considering alternative sources for financing home renovations.
1. A personal loan for home renovations.
You have options when it comes to financing home renovations, including personal loans. A personal loan is an unsecured loan that can be used for just about any expense, including home renovations like bathroom upgrades, kitchen improvements, and new flooring. A personal loan is an option to look into if you have good credit because you can borrow higher dollar amounts and get a competitive rate. If your credit isn’t in the best shape, lenders like Uprova can still help you borrow up to $5,000.
Personal loans are unsecured, which means they don’t require collateral and pose a lower risk to your other property. These loans also have fixed installment payments, so you know exactly how much you will owe each month. You also don’t need to have equity in your home in order to qualify.
2. A home equity loan.
Another home renovation financing option is a home equity loan. Your home equity is measured by taking the amount you owe on your mortgage and subtracting your home’s value. For example, if your home is worth $500,000 and your mortgage is currently at $400,000, you have $100,000 in home equity.
If you have equity in your home, you can borrow against it. With a home equity loan, you borrow a fixed amount at a predetermined interest rate, then pay your loan back in installments. Unlike a personal loan, a home equity loan is backed by your home. This makes it easier to qualify for funding if your credit score isn’t in great shape, but also means that you could lose your home if you fall behind on payments. For that reason, it’s vital that you confirm you can afford your home equity loan payments before accepting the loan.
3. A home equity line of credit.
A home equity line of credit (HELOC) is another home improvement financing option that lets you borrow against your home’s equity. Like a home equity loan, you will need equity in your home to qualify. The main difference between a home equity loan and a home equity line of credit is that you will gain access to a line of credit that you can borrow from over time.
The biggest advantage to a HELOC is flexibility. If you aren’t sure how much your home renovations will cost, and you don’t want to worry about having to borrow again, you can take out a larger HELOC and only withdraw the amount you need.
The downside to a HELOC is that interest rates tend to be variable instead of fixed, so your monthly payments could increase at any time. A HELOC is backed by your home, so if you fall behind on payments, you could lose your home.
Many people can’t afford to pay for home renovations with cash. Using your savings could put you in a vulnerable position should you lose your job or have unexpected expenses. A personal loan is unsecured, so you don’t have to risk your home for funding. A home equity loan uses the equity in your home, so if you have lower credit, you could improve your chances of funding by going this route. A home equity line of credit provides flexibility, allowing you to pull the exact amount you need, but comes with a variable interest rate.