How to borrow money for home improvement?
Your house is your temple and it is understandable if you want to improve it further. Renovating the kitchen, fixing the bathroom, expanding the bedroom – every homeowner wishes for this. The only problem is that home improvements do not come cheap. But if you are determined to give your home a new look, follow these tips to start financing for home improvements.
- Get into an equity loan. What you can do is use your house to pay for the improvements. If you are going to apply for an equity loan, you should only borrow the amount you need for the remodeling of your house. You will be required to pay the loan within a certain period of time on a monthly basis. If you are planning a one-time project only, then this is your best option, especially if you already have a fixed cost prepared. Interest payments are also tax deductible so you don’t have to worry about that. Home improvement projects are also a good idea because it can increase the worth of your home and of course increase your equity. It’s a win-win situation for anyone.
- Tap into a Home Equity Line of Credit, also known as a HELOC. With HELOC, you will have a flexible account wherein you open up a credit line that will represent a percentage of your equity and draw on your credit. For this one, you have to pay the interest every month but you will be able to control the amount of the principal to pay every month. Also, the line of credit stays open in case you plan to use it in the future or even for emergency purposes. If for example you plan to do improvement s in the future and it will involve multiple payments to suppliers and contractors the HELOC is for you.
- You can also use your credit for the improvement expenses but it can be an easy way to get buried under debt. But if you can manage to pay down the monthly payments regularly, it can also be a good way to improve your credit score. If you are only tackling small project or renovations then you can make use of this method. Before you decide to use your credit, make sure you check your credit score and your credit report. Avoid going over your limit as it will only damage your credit further.
- If you have your 401(k) account, you may be able to borrow some money from that account then repay yourself through a payroll withholding. The downfall of this is that you won’t be able to borrow 50 percent of the total balance of your 401(k) account which is up to $ 50,000. Also, you have to pay back what you borrowed within 5 years. This can cause problems in case you lose your job because you are obliged to pay the loan right away. If not, you have to deal with more penalties and a higher interest.
- You can also borrow from investments or from your life insurance. This type of loan will require less paperwork compared to equity loans which means you will be able to proceed with your projects faster. But you are subject to more risks of losing your insurance and even your investments if you fail to pay for your bills regularly and the interest you pay for this is not tax deductable as well.
You don’t have to have a large amount of money in order to get started on improving your home and its worth. But you have to be sure that you will be able to pay your loans consistently to avoid accumulating debt and to avoid hurting your accounts or your credit score. The key is to budget your money and manage your finances well to avoid missing out on payments. Check your credit reports and scores regularly to be able to keep track of all your transactions easily. Give these methods a try and give your house the improvement that it deserves!