Planning a home renovation or improvement project is
exciting; developing a vision, discussing options with the contractor – the possibilities
can seem endless. However, depending on the scope of the project, figuring out
how to finance the venture may present more of a challenge. Just as each
project is unique, there exist many options for the homeowner.
Cash vs. Credit
If
you’re financially able, cash can often be your best option. You are simply
paying for the project, without the hassle of applications or the added expense
of interest charges. Depending on the extent of the project and the price tag,
though, saving may not be enough. If you intend to use credit, shop around and
look for low interest rates or, even better, zero percent interest for a
certain period of time. Take care to inquire about the rate after the promotional
period to avoid heavy finance charges.
Home Equity
If you are considering one particular project, using your home
as collateral is a viable option. While you do pay closing costs, any interest
you pay is considered tax-deductible. Both the amount borrowed and the interest
rate is fixed. Rates are often lower than a credit card and are paid off over a
longer period, typically 10-20 years. Refinancing with your lender and using
the cash toward the project is another option.
Government Loans
Although not as commonly utilized, there is government
assistance for making home improvements to properties that are in need of
rehabilitation.
Title I
This
loan is subsidized by the U.S. Department of Housing and Urban Development
(HUD). According to the HUD site,”Loans
on single family homes may be used for alterations, repairs and for site
improvements. Loans on multifamily structures may be used only for building
alteration and repairs,” meaning property repairs do not qualify. The maximum term
for a single family home is $25,000 for no more than 20 years.
203(k) Rehabilitation Mortgage
The 203(k) Rehabilitation Mortgage allows home buyers to
build home improvements of up to $35,000 into their mortgage. Repairs may have
been pointed out by a home inspector, or the homeowner may want to improve
property values by remodeling the home.
