Are you looking to upgrade your current home but are unsure how to afford it? The good news is that since you’re already a homeowner, you’ve got a lot of options to make your dreams a reality. Here’s everything you need to know about the best ways to pay for home renovations.
Why to Renovate Your Home
Firstly, you might be wondering why you’d even want to get home renovations to begin with. Well, depending on your home’s age, renovations could add a ton to both the value and longevity of your abode. This goes double for infrastructure like your roof or foundation!
What It Costs
The average American household spent around $22,000 nationally on home renovations in 2022. Keep in mind that’s an average, and that prices fluctuate greatly based on what kind of renovations you want, where your home is located, and things like your credit score and ability to do some renovations yourself.
Saving Up
The best way to afford home renovations, if you can wait to do it out of your own pocket, is to just save up. If you save money in a savings account for a few years and then manage to pay for the renovations yourself, you avoid costly things like closing costs and interest rates. This is perfect for people with smaller renovation needs and high-paying jobs.
Home Renovation Loan
Usually, though, people will take out some kind of loan to pay for home renovations. The most straightforward of these would just be a classic home renovation loan. These loans have special rates and are taxed differently as long as you use the money to exclusively pay for updates to your home.
Home Equity Line of Credit
A home equity line of credit, or HELOC, is a secured loan that you can pull from when you need more money. It’s great for long-term projects and it’s secured by the value of your home. It’s got lower interest rates since your home is up for collateral should you fail to pay it back. So, make sure you pay it back!
Home Equity Loan
A similar loan type is a home equity loan, which isn’t a “revolving credit” like a HELOC, but a one-time loan like a home renovation loan. This one is also secured against your house, which lends it its colloquial name, a “second mortgage.” Like HELOCs, this means failure to pay this kind of loan back results in the loss of your house.
Cash-Out Refinance
You could, alternatively, replace your existing mortgage with a new one. This is also called refinancing your home. This results in the excess value of your home going into your pocket as part of the loan, freeing you up to use the money for home renovations. This is particularly helpful as those renovations will likely improve your home’s value further, creating a positive feedback loop.
Credit Card
If you’ve got smaller renovations that need completion quickly, you could just use your credit card. It’s highly advised that you not put large project on a credit card, given how steep interest rates can be if you fail to pay the card’s balance back within the term. But for smaller things like appliance repair or minor renovations, this can be a much more flexible option.
Read More: 10 Questions to Ask Before Taking Out a Personal Loan
Government-Issued Loans
Finally, depending on where you live, you might quality for government-issued loans for home renovations. Typically, government-issued loans have to be applied to things that improve a home’s livability, such as structural repairs or renovations to utilities. Still, these can be the most affordable option if you’re capable of qualifying for them.
Read More: How to Increase Your Home Value: A Guide to Home Improvement
Make Your Current House Your Dream Home
Renovating your home can make your current living space into your dream home without requiring you to pick up and move. That’s compelling for a lot of people! Just make sure you’re making the right moves to afford the renovations in a way that is responsible in the long term.
Read More: 10 Things to Know Before You Refinance Your Mortgage
