Now that you’ve figured out how much your project is going to cost, the next question is, “How do I pay for it?” Here are five different methods our clients who don’t have cash get the money to pay for their projects:
1. Refinance the existing mortgage, and pull from the equity in your home. When interest rates are low as they are now, this can make sense. Sometimes your payment doesn’t change, which is nice, but the length of time you will pay on the loan will increase. If you are planning on staying in your home for years to come, this may be the way to go for you.
2. Home equity line of credit. You may be able to set up a home equity line of credit. This works like a credit card, with the equity in your home securing the loan. If you have several, ongoing remodeling projects, this keeps you from having to keep doing the loans over, and it keeps your original mortgage in play.
3. Get a second mortgage. A second mortgage, also known as a home equity loan, is structured just like your existing mortgage. The key differences are that the term is usually shorter and the interest rate will be higher because the second mortgage is subordinate to your existing mortgage. When pursuing a second mortgage, take on only as much extra debt as is needed to finish the remodeling. From an interest standpoint, these aren’t always great deals.
4. Get a loan secured on another asset. Loans for home improvement do not have to be secured on your home equity. Lenders are often willing to extend loans secured on other large assets such as cars, or other pieces of property. These loans will tend to have shorter terms with higher rates so you need to be sure your personal cash flow can handle the extra monthly cost.
5. Pay for the home remodeling with consumer credit. This is one of the least favorable options for financing home remodeling projects. High interest rates and credit cards are known paths for getting people into financial trouble. It’s good to have a credit line in reserve for an emergency repair; anything else really needs to be thought out.
When my clients ask me about financing their project, I always refer them to Diana Sharp with Frost Bank. Frost Bank is a strong regional lender that has a department that specializes in home improvement loans. After just a short conversation on the phone with Diana, you’ll know the path to take based on your circumstances. You can contact Diana at 817-420-5242 for more great information; she always makes a positive impression with our clients.