How to Finance Home Improvement Projects
Home improvement is the remodeling, altering, painting, repairing, renovating, or restoring of residential and noncommercial property. It also includes the installation of energy-efficient windows, insulation, and roofing. Other types of improvements include the construction or installation of a driveway, patios and decks, fences, garages, sheds, and home additions.
Homeowners embark on home improvement projects with a wide range of motives. The most obvious are to enhance the look and feel of their homes, but some people hope that the renovations will add value as well. This thinking is understandable, as a new kitchen or bathroom can make a significant difference in how much a house sells for.
However, it is important to remember that not all home improvements add value. In fact, some renovations can actually detract from a house’s value by turning off potential buyers. To avoid this, it’s important to carefully consider any project before committing to it.
When considering a home improvement project, it’s helpful to consult reports and indexes that provide advice and instruction on the best options. These resources can help you determine which upgrades will have the highest return on investment and which may be better left to a professional contractor.
Taking out a home equity loan is another option for financing renovations. This type of mortgage involves borrowing against your home’s equity and is repaid over five- to 30-year terms via fixed monthly payments. It’s possible to borrow up to 85% of your home’s equity, so it is important to have a budget in place before proceeding with this type of renovation. It’s also important to keep in mind that closing costs, origination fees, and appraisal charges will be added to the loan amount.
The best way to decide which type of financing is right for a particular renovation is to shop around. Some lenders offer home improvement loans at a lower interest rate than others, and some have specialized products for remodeling projects. It’s also worth shopping for credit cards with 0% APR offers, which can help you pay off debt over the course of a year without adding to your overall costs.
A good rule of thumb is to limit major home improvements to no more than 10% of your home’s current market value. This will ensure that you don’t spend more than your home is worth, and that you have a reasonable chance of recouping your expenses when it comes time to sell. If you’re unsure about the best way to proceed with a renovation, consulting a real estate agent or appraiser can be helpful. A real estate professional can assess your current property and determine which upgrades are most likely to increase your home’s resale value. They can also recommend trusted contractors and provide you with a ballpark estimate for the cost of your project.