Home improvements can be a wonderful way to make your living space more comfortable; however, there are times when emergency repairs and expenses crop up. Your air conditioning could break in the middle of August or your water heater could fail mid-shower. When this occurs, you can’t put off the repairs until you have extra cash.
Fortunately, there are multiple ways to pay for home improvement projects so you can restore your house to working order. Here are a few options to consider as you work out your repair plans.
How Much Do Major Home Improvement Projects Usually Cost?
Home improvement project costs can vary significantly depending on what needs to be done. While you can repair a water heater for less than $1,000 in some cases, you could end up paying more than $10,000 for a new roof.
Financial experts recommend setting aside 1-4% of your home’s value as a maintenance fund. If you have a $300,000 house, you will need between $3,000 and $12,000 per year for repairs.
Along with emergency repairs and general maintenance tasks, you will also want a budget for home improvements. These include projects like bathroom renovations and updating your kitchen appliances. These costs are also different from the expenses related to furnishing your house.
Before you ever start on a home improvement project, get an estimate of how much it should cost. You can either look at regional averages online or consult a contractor to understand how much money you should set aside.
What’s the Best Way To Finance Home Improvements?
It doesn’t matter whether you have an emergency repair or an interior design project that inspires you, there are multiple ways to finance your home improvement projects. Here are a few options so can you consider all of the pros and cons.
Save Up Money Over Time
The most basic way to save for a home improvement project is to set aside money over time. You can set up a high-yield savings account to store your funds until you have enough for your project. For example, if you want a new refrigerator but it costs $2,000, you can set aside $200 each month for 10 months.
The main benefit of this option is that you don’t have to take out any loans. However, there are several drawbacks. You will have to wait while you save cash, which means your project is delayed. If you have an emergency expense, like a car accident, you might wipe out your savings to cover that cost instead.
Home Improvement Loans
If you want to finance your project immediately, look into conventional unsecured loans. These loans vary in size depending on your project needs and have interest rates ranging from 7-36% as of May 2024. The interest will depend on your credit score, besides the loan, and how long you take to pay back.
The benefit of this option is that you can get your cash quickly and borrow the exact amount you want. The main drawback is that short-term loans can be expensive, especially if you have poor credit. You also want to avoid taking out multiple loans at once.
Home Equity Loans (HELOC)
A home equity line of credit (HELOC), allows you to borrow against your home’s equity. Most lenders will let you borrow up to 80% of your equity in a HELOC. For example, if your house is worth $500,000 and you have a $200,000 loan, then your equity is $300,000. Your maximum HELOC would be $240,000.
This could be a good option if you need a large loan at a fair interest rate. HELOCs are ideal for tackling major home improvement projects. However, you lose home equity through this loan which means it could take longer to pay off your mortgage.
Home Repair Loans From the U.S. Government
Depending on your income level and location, you may qualify for government repair loans to tackle home improvements. These loans offer favorable interest rates so you can pay them back quickly.
Some regions also have home improvement grants so homeowners can improve their properties. Florida, for example, has a hurricane preparedness grant to assist homeowners in protecting their houses ahead of storm season. The main difference between loans and grants is that you usually do not have to pay back grants.
Stock Loans
If you own stocks or publicly traded shares, you can borrow against them with a secured loan option. In this case, your stocks work as collateral, allowing you to get the funds you need for your home improvement projects. You are not selling your stocks when you take out stock loans. Instead, you’re using their value to highlight your lending power.
This could be a good way to secure financing for your projects without applying for a HELOC. You might also discover that you get more favorable interest rates by borrowing against your stocks instead of through unsecured home improvement loans.
Most people don’t realize they can take out loans against their shares. However, as more people learn about stock loans, they’re more likely to take advantage of them. Use our stock loan calculator to estimate how much you can borrow.
Cash-Out Refinancing
With cash-out refinancing, you renegotiate the terms of your mortgage and take out a bigger loan. For example, if your house is worth $500,000 and you owe $200,000 on your mortgage, you might opt for a cash-out refinance that increases your mortgage to $300,000. Your lender will give you $100,000, which you will pay back over time.
Refinancing your home can be complicated and can come with other expenses. You may need to have your home appraised, which could raise your property taxes if the estimated value has increased. One benefit of this option is that it keeps your debt consolidated. Instead of paying a mortgage and a loan, all of your debt payments are in one place.
Credit Cards
If you are looking to cover a smaller project, consider paying for it with a credit card. You can look into 0% APR cards that allow you to pay off the debt over time without accruing interest. You can also charge your home improvement project to a rewards card, which will give you cash back or travel points.
Credit cards are easy to use and most contractors and stores accept them. Just make sure you aren’t paying high interest rates on your purchases which can make them more expensive over time.
Repair and improvement projects are an essential part of homeownership. Even if you have a newly built house, you will need to set aside money to work on it. Keep these financing options in mind so you always have enough money on hand to address a repair or make an upgrade that you will love.
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