Home renovations are essential for a home to keep its value and curb appeal. Most of the time, people remodel or renovate every decade. But some do it every five years. Regardless of how many times you renovate, the cost for renovation would be more expensive than the last time.
The average cost of renovating a home is $15,000. If we put it by a room, that’s a fraction of the overall cost of your home divided by the number of rooms you have. Be mindful that bigger rooms should be more expensive than smaller ones. Now that you see the cost of renovations, you can see how expensive they can be. If you want to offset those costs, you’ll have to be creative with your budget. Here’s how you can finance your next home renovation.
Use Your Equity
If you own your home, one of the best ways to finance your renovation is by using your equity. Equity is the portion of your home that you own outright. For example, if your home is worth $300,000 and you owe $150,000 on your mortgage, you have $150,000 in equity. You can access your equity by getting a home equity loan.
A home equity loan is considered to be a lump-sum loan. You borrow a set amount of money and pay it back over a period, usually five to 15 years. A HELOC is similar to a credit card in that it’s a revolving line of credit. You can borrow money as you need it up to your credit limit and pay it back over time.
Both home equity loans and HELOCs have their pros and cons. To find out more about them, contact your local mortgage lender. They can give you a rundown of what each option entails and help you decide which one is best for you.
Get a Personal Loan
If you don’t have equity in your home or are not interested in using it, you can apply for a personal loan to finance your renovation. Personal loans are unsecured loans, which means they’re not backed by collateral like a home equity loan or HELOC.
Personal loans have fixed interest rates, so you’ll know exactly how much your monthly payments are. And you can choose a repayment period that works for you, anywhere from one to seven years.
One of the benefits of using a personal loan to finance your renovation is that it’s relatively easy to qualify for. Lenders will look at your credit score and income to determine whether you can afford the loan.
If you’re interested in a personal loan, compare offers from multiple lenders to get the best rate. You can use an online lending marketplace like Credible to compare personal loan offers in minutes.
Save Using The One-percent Rule
If you want to avoid borrowing money altogether, you can save up for your renovation using the one-percent rule. The one-percent rule is simple: set aside one percent of your home’s value for maintenance and repairs each year.
For example, if your home is worth $300,000, you’ll save $3,000 each year. That may not seem like a lot, but it adds up over time. After ten years, you’ll have $30,000 saved. And after 20 years, you’ll have $60,000 saved.
The one-percent rule is a great way to stay ahead of repairs and prevent big problems down the road. Plus, it’s a painless way to save since you’re setting aside such a small amount each year.
Utilize a Renovation Loan
If you’re planning a major renovation, you may want to consider a renovation loan. A renovation loan is a type of home equity loan that allows you to borrow money to finance repairs and renovations.
Renovation loans typically have lower interest rates than personal loans and credit cards. And they offer longer repayment terms, which can make your monthly payments more affordable. But the downside is that you can only use it for renovations and nothing else. Usually, the lender would send a representative to inspect the property to ensure the funds are being used as intended.
A credit card is the least optimal way to finance your renovation as it will rack up the highest interest fees, but if you don’t have access to any other form of financing and you need to start your repairs right away, then using a credit card may be your only option.
If you decide to use a credit card, make sure you’re using a low-interest card. And try to pay off your balance as quickly as possible to avoid paying interest.
Renovating your home can be expensive, but there are ways to finance your renovation without breaking the bank. Use your equity, take out a personal loan, or save using the one-percent rule. And be sure to compare offers from multiple lenders before deciding on a loan.