Eventually, homeowners will want to make some changes in their homes, whether remodeling the bathroom or extending the kitchen. Doing these changes can increase the home value and keep the place safe, beautiful, and up to standards. These little home projects may cost less than purchasing a house, but they still require a good amount of money. On average, a bathroom upscale costs $67,000, and a major midrange kitchen remodeling will cost $68,000. Not all homeowners have that money lying around, but upgrading the house is still possible thanks to these payment options you can try.
Option 1: Getting a Home Equity Loan
The home equity loan allows homeowners to borrow money against the equity of their home. That means you apply for a second mortgage using your current home as the collateral. How much money you will get depends on your loan provider, but most lenders will allow you to borrow up to 85 percent of your home value. In some cases, you will receive the loan as a lump sum of money.
This option is best for homeowners with already substantial equity in their homes because of the loan-to-value limits. Since your home acts as your collateral, it reduces the risk for you, and the loan rates you get are typically lower. Another good thing about this loan is that it offers payment predictability because it has fixed interest rates.
The only risk you have is losing your home when you cannot pay the loan as agreed.
Option 2: Applying for HELOC (Home Equity Line of Credit)
The next option you have is HELOC. It is similar to a home equity loan wherein you get a second mortgage with your house as the collateral. The main difference is how it operates. HELOC acts like a credit card. Once you get approval for a loan limit, you can borrow any amount you need for the project as long it is still within the limit.
This option is recommended for homeowners who do not know how much money they need for the renovation project. You borrow what the project demands and only pay the amount you borrowed. However, you should know that HELOC follows a variable interest rate loan, which means there is no standard rate. Their rate depends on the market index, and it can change over time.
Option 3: Using Your Credit Card
Credit cards are not always the best option for financing your home renovation project, but they can help when needed. This option can be beneficial if you only need to fund a small project that you believe you can repay in less than a year. Find a credit card lender that offers balance transfer cards with APR for up to 15 months to make the most of this option. However, keep in mind that the consequence of not paying on time is an interest charge of up to 25 percent.
Option 4: Apply for a Personal Loan
If you do not have much home equity, there is an option for you. You can opt to apply for a personal loan. Personal loans may charge higher rates, especially when you have a low credit score, but they usually have fixed interest rates, and they do not put your home at risk if you are unable to pay. They can still be an excellent solution to your renovation fund problem.
Conclusion
Some owners have this hidden desire to transform their living space, but they get scared of the expenses that come with it. Yet, there is no other way to make it happen than by pushing through with it. You can still make your dream home renovation come true. You just need to identify which among your multiple loan options is the most reasonable for you. Making financial decisions is not always easy, but Good Neighbors Credit Union is always here to help you find a good verdict. We aim to provide our clients with the best tools and resources to manage their finances. Whether applying for a loan, finding the best money market accounts, or controlling your money flow, we got you covered. Contact us today to learn how we can help you.