How to Finance Home Improvement
Home is a form of investment. Proper care and maintenance of the house is very much essential to safeguard this asset. Home improvement is one of the ways to take care of your home. A properly done home improvement not only improves the appeal of the house, but also creates cozy and comfortable environment in the house. Well-improved, attractive houses also yield good price in the real estate market. Whether one needs to do simple home improvement or a complete renovation, he has to make some kind of financial arrangements. What are the various options available to finance home improvement?
The easiest and economical way to finance home improvement is by paying cash. However, in the current economy, most of the people lack the fund and paying by cash could be difficult for them. If the remodeling requires few hundred or few thousand dollars, then raising fund by selling extra vehicle, boat or jewelry is a wise decision. If one needs a small amount to finance home improvement, then he can use credit cards. Most of the home improvement shops offer credit cards, which can be used to buy home improvement materials from those particular shops. They also offer good deals and financing options on home improvement items, when using their cards. However, credit cards charge hefty interest rate and penalty if not paid on time and these interests are not tax deductible.
If the home improvement costs more than few thousand dollars, then the best way to finance is by using money from home equity loan (HEL) or home equity line of credit (HELOC). This loan is given by the lender using home as a collateral. If one is sure about the future expenses involved in the home improvement, then he can go for home equity loan, where the borrower will get a lump-sum amount as loan. Home equity loan is usually offered with fixed interest rate. However if the home improvement is an open ended project, where the home owner cannot predict the expenses, then one can go for home equity line of credit. This is a revolving credit, usually with an adjustable interest rate. Both home equity loan and home equity line of credits are tax deductible. In order to qualify for home equity loan and HELOC, one should have good credit history.
If the home equity is limited, FHA Title one is the option to finance the home improvement. Banks and other finance lenders offer loans from their own funds, which are insured by Federal Home Administration (FHA). These loans can be used for the basic home improvements such as kitchen remodeling, bathroom renovation and so on so that the house can be made livable. One cannot use this for remodeling the swimming pool or other similar remodeling, as these are considered as luxury and not basic requirements. Advantage of FHA Title one loan is that there is no scope to get cheated by a dealer, as all finance dealers should be approved by the lender.
Borrowing money from the retirement plan is another option to finance the home improvement. This does not involve any credit check and hence there is no lag period to get the loan. This is good for those who have bad credit history or who needs immediate money. However, if the borrower leaves his/her job after withdrawing money, he will have to pay penalties and taxes.
Borrowing money from life insurance and portfolio are other options. Some of the contractors also offer financing home improvement. However, it is always better to stay away from taking loan from the contractors as most of them have some hidden finance charges and the borrower will end up paying extra money.