Smart options to pay for home improvements


Now is the time that many homeowners are starting to develop home renovation and improvements. What is the best way to pay for home improvements? That is the question we all need to ask ourselves before starting any size of home improvement.
What are the options available for paying for home improvements?
Most people have five options available to them: savings, credit cards, personal loans, home equity loan and a first mortgage cash out refinance. The amount of the project and how much you have saved will determine the optimal option for most people.
If it is a project less than $5,000 what are the options?
Two really good options would first be savings and the second option might be a credit card, especially if you can get rewards for making the purchases for the project. The pitfall to avoid if using credit cards is not paying just the minimum balance.
What about for larger projects in the $10,000 range?
This is when a personal loan might be the best option. Most people will be able to get a better rate than on a credit card and the payment term would be in the three to four year time frame which should be manageable for most budgets.
How should projects that are over $20,000 be financed?
Two of the most reliable options are the home equity loan and the cash out first mortgage refinance loan. There are several advantages available with both which include lower rates and longer terms which keep monthly payments lower. The cash out refinance might offer tax advantages too.
For the home equity or cash out refinance are there any special requirements?
For both options, there must be equity in the home meaning the value of the home must be more than the loans against the home. Most financial institutions will only go to 90 or 95% loan to value on these types of programs.
Do you have a recommendation for the best way to pay for renovations?
Probably the most financially savvy way to pay for a home renovation is to start saving one year before the project start date. The amount you should save monthly is the amount you expect your loan payment to be. This allows you to work this payment into your budget and also providing a nice down payment for the project that will lower your overall loan amount.

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