7 Innovative Ways To Finance a Home Remodeling Project
Wondering how you will pay for your home remodel or repair? Consider one of these financing solutions for your next home remodeling project.
According to HomeAdvisor.com, the national average cost of home remodeling in 2022 ranged from $17,947 to $78,243. There are some homeowners who spent as much as $160,000 for multiple-room improvements.
As a homeowner, before you start looking for financing, it is important that you meet with your contractor, itemize what needs to be done and come up with a cost estimate. Be sure to factor in contingencies and unforeseen price hikes, generally 10% to 15% of the estimate. Once you have an estimate of your final costs, it is time to determine your finance options.
The good news is that there are several innovative ways you can finance a home remodeling project. Here are seven of them:
1. Home Equity Line of Credit (HELOC)
A HELOC operates like a credit card. Instead of giving you a lump sum, the lender provides you with an active line of credit with a fixed ceiling.
With a A HELOC, you can withdraw money as you need it during a home remodeling project. Repayments are based on how much money you have withdrawn.
A HELOC is the most popular source of home remodeling financing. Up to half of home improvements, repairs and additions in the United States are financed by a HELOC.
2. Peer-to-Peer (P2P) Lending
A less common and slightly more expensive way to finance a home remodeling project is through peer-to-peer (P2P) lending.
P2P lending websites like LendingClub and Prosper match borrowers with investors who are willing to lend.
Compared to banks and other financial institutions, P2P lending has less stringent conditions and qualifications. Moreover, homeowners who can’t qualify for a HELOC and other forms of conventional financing can often access funds through P2P lending.
Expect to pay a higher interest rate on a P2P loan than other finance options.
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3. Reverse Mortgage
A reverse mortgage enables a homeowner to access the equity of his home. The owner can use the funds however they want including to remodel or renovate the home.
A reverse mortgage is only offered to people who are 62 years and older.
4. FHA 203(k) Loan
A FHA 203(k) loan is a loan backed by the federal government and given to home buyers who want to buy a damaged or older home and make improvements on it.
When a home buyer encounters a property that is located in a satisfactory place but needs substantial improvements, a FHA 203(k) loan can come in handy. It comes with low interest rates and a smaller-than-usual down payment, sometimes as low as 3.5%.
5. Mortgage Refinance
Refinancing a mortgage is one of the more common ways homeowners finance their home improvement projects.
In addition to providing the much needed cash for a home remodeling project, mortgage refinancing can result in a lower interest rate. Moreover, a mortgage refinance provides ample opportunity to convert a variable interest mortgage to a lower fixed rate.
Related: Should You Refinance Your Home?
6. Energy-Efficient Mortgage
A homeowner can benefit from energy-efficient financing whether for buying, selling, refinancing or remodeling a home.
An energy-efficient mortgage is a beneficial way to finance a home remodeling project that will increase the energy-efficiency of the home. Some states have programs specifically for their residents.
The sole purpose of this loan is to enable homeowners to make their homes more energy-efficient.
7. Home Improvement Loan
Home improvement loans are offered by several financial institutions for the purpose of making improvements and repairs in a home. They can be given for a variety of home improvement projects, ranging from a simple roof repair to a multi-room remodel.
Reviewed October 2022
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