Cash savings is not the only way to finance home renovations. In fact, many home owners don’t have the liquidity and often resort to other options. If you’re in this same boat, here are a few different ways to finance home renovations in Florida.
1 – Home Equity Loan
If you have equity in your home from years of ownership or a large down payment when you initially purchased, you may be able to access that equity via a home equity loan. This is one of the easiest ways to finance home renovations. Most lenders allow you to borrow up to 80% of your home’s value (less any existing loans). Some credit unions allow you to borrow up to 90%. These loans generally have low interest rates and are quick to obtain. The interest rate and monthly payment is fixed. Think of them as a second mortgage with a one-time cash payout and regular monthly payments.
2 – Home Equity Line of Credit
Similar to a home equity loan, a home equity line of credit (HELOC) allows you to access the equity in your home. The difference is that there’s no one-time payout. Instead, you an access the line of credit as-needed. Regular monthly payments are required, based on the amount borrowed. As you pay down the balance, you can continue to withdraw from the line of credit for future needs. Another important difference with a HELOC is that the interest rate is often variable.
3 – Home Refinance
If the existing interest rate on your mortgage is higher than current market rates (by 1% or more), then it may make sense to refinance your mortgage. If you qualify, you can borrow more than is currently owed on your loan, allowing you to cash-out some of the equity and use that for home renovations. Not only will you pay less interest on the previous loan balance but you essentially lock in a low interest rate for home renovation expenses as well. Everything is maintained as a single loan, making it easy to manage and budget.
4 – Personal Loans
Another financing option is through a personal loan, although this is the least attractive solution. Personal loans are offered by banks and credit card companies. The previous options we listed above place a lien on your property, which provides security to lenders. Personal loans are not tied to anything, therefore tit’s higher risk for lenders. Thus, interest rates are also typically higher on these loans. This is what makes them less ideal.
If you do use a personal loan as one of the ways to finance home renovations, make is a short term plan. Many people refinance their homes later, knowing that the value will be higher with the renovations completed. They cash out some of the equity to repay the personal loan. Thus, the higher interest paid would be more short-term and replaced by the refinanced mortgage.
Summary of Ways to Finance Home Renovations
The above are just a few of the most popular ways to finance home renovations. Depending on your circumstances, you may have other options such as a 401(k) loan or stock sell-off. Regardless of which option you choose, our team is here to work with you on a budget and renovation plan that meets your needs. Please contact us to schedule a consultation on your Florida home renovation project.