You have your house plan, your choices of paint and tools, and a picture in your head. You have the expenses figured out.. or so you think. The financial aspect of remodeling your home may seem simple. But there are more to consider when financing a remodeling project.
First, ask yourself: Is the home improvement for your own benefit or is it to help you sell the property?
This question is important because you will be remodeling the house with either your family’s needs or the next occupant’s needs as basis. The changes of the house should naturally be for the good of whoever will use the house after the remodeling. If the purpose of remodeling your house is to make it better for you and your family to live in, then by all means remodel the home however you want. But if your goal is to make a higher sales price for the house, then don’t be too specific on the remodeling. Compare the property with those in the neighborhood first. If your home improvement plans will bring the house to the neighborhood’s level, the sales price can be increased. Being too different from the neighborhood (like having the only swimming pool or being covered with so many tall bushes), on the other hand, might only put off buyers.
In remodeling the house for the buyers, you might want to stay safe. Tastes vary for every person and the buyers may not like how you remodeled it. They might want to have their own decorations on the house when they move in. Staying simple is sometimes the better decision.
How To Pay For Your Remodeling Project
There are many options on how to pay for your remodeling project. You may be able to spend less than the normal amount, or you may be able to deduct the interest from your income taxes.
The simplest option in financing your remodeling project is to use an unsecured loan. This type of loan, however, is only best when your remodeling project costs under $10, 000. The loan costs won’t be associated with other types of loans, but the interest rate would be higher.
Opting for the home equity line of credit is also a plan. If your house is worth more than your current mortgage you can borrow against that amount. You can borrow the money in stages if you want, and no interest will be charged until you actually borrow the money. You are expected to pay the closing costs to set up the loan, though.
One disadvantage of getting a home equity line of credit is that the interest rates vary and they may go up. Another downside is that you have to be prepared to pay the entire loan immediately if the lender tells you to.
Another option is having a ’second mortgage.’ The second mortgage is similar to the home equity loan in terms of having to borrow equity in your home. But a second mortgage has a fixed interest rate and is for a fixed period of time only.
For major projects, you can try to refinance your first mortgage. Using this option, you will be facing an interest rate lower than your existing mortgage, though you’ll still have to settle the closing costs. The interest can actually be deductible so ask for assistance from your tax advisor when refinancing your first mortgage.
401k or 403b retirement plans are also alternatives in financing your remodeling project. With the 401k or 403b, you’ll be able to avoid most closing costs. But you will only have a short amount of time to pay it back, so it would be best to use this loan only on smaller projects.
One last option is to borrow borrow from your contractor. This is actually the most costly of the loan options. Interest rates of this loan can be as high as 20% or more.
For everyone of these options, you are sure to find both advantages and disadvantages, Finance isn’t such a simple thing, especially where loans are concerned. Since loans are usually needed in remodeling a home, you should try look into the costs more closely and pick the best option for your remodeling project.