Does your house need major improvements? Stressed about how to pay for renovations? Repairing properties that need work is expensive. Roofs, HVACs, and electrical projects add up to tens of thousands of dollars. The “uglier” the house, the higher the bills. If you have a fixer-upper, you need a lot of money.
Money stands between you and your desired home improvements. Most of us aren’t so lucky to be sitting on piles of cash. Those on a tight budget need to carefully evaluate every financing option. Gather the funds to make your repairs in the “right way” to ensure your renovations pay off. Below is the complete list of how you can pay for home improvements.
Looking to sell the property? If you’re unable to secure the cash to renovate (or don’t have the time), give us a call (954) 676-1846 or fill out this form for a fair “as-is” cash offer. House Heroes buys property in any condition anywhere in America.
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8 Ways To Pay For Home Improvements
Cash. Paying for home improvement with cash savings is the easiest and best way. Cash as big time advantages: no interest, fees, or charges; not depending on other people’s money; and you have complete and immediate control. The only downside of using personal funds is that you deplete your cash reserves. If you don’t have plenty to spare, you could in a tough situation if there is an emergency or defects are discovered that magnify the amounts necessary. One way to manage limited cash is to do small projects over time as you make additional income.
Refinancing Your Mortgage. Paid down your mortgage and have equity in the property? You can ask the bank to modify the mortgage with a “cash-out refinance”. Cash-out refinance is “where the new mortgage loan is for a larger amount than the existing mortgage loan, and you (the borrower) get the difference between the two loans in cash. Basically, homeowners do cash-out refinances so they can turn some of the equity they’ve built up in their home into cash.” You can use that cash to pay for your home improvements! Refinancing is best if interest rates are low and you were refinancing anyway.
Cash-out refinancing has notable disadvantages. By depleting your equity, when you sell the house you will make less. Interest and principal payments need to be paid monthly. High interest rates means you have big interest payments and could lose money. You can Check interest rates daily here.
Do you qualify for refinancing? According to Lending Tree, you cannot refinance for an amount exceeding property value. Additionally, banks will look at credit scores (usually requiring 620-660) and require a “debt-to-income” ration no more than 38%.
Home Equity Loan. Home equity loans occur when you borrow money and use the equity in your house as collateral. You get a lump sum of cash in exchange for monthly interest and principal payments. Home equity loans, similar to refinancing, require strong credit history, reasonable loan-to-value, and debt-to-income analysis. Appraisal is required before the home equity loan is issued. This is a strong choice when interest rates are low.
Home Equity Line of Credit (HELOC). HELOCs are “loans set up as a line of credit for some maximum draw, rather than for a fixed dollar amount.” Essentially, a lender promises to advance you an amount of money at a time you choose. The advantage of paying for home improvements with a HELOC is that you only draw the amount of cash you need – this prevents you from borrowing (and paying interest on) money not required for the repairs. The downside is that you will need to make interest payments and ultimately pay back the principal.
Credit Cards. We’re all familiar with credit cards. The advantage is that you can make purchases quickly – but you need to be extremely careful. Credit cards have excessive interest and fees, and produce a false sense of security. High interest payments make credit cards suited for smaller renovations. For best results, get 0% interest credit card with no payments for 12 to 18 months and great “points rewards”.
Construction loan. Construction loans are short-term loans (usually around 12 months) that pay for building a new home or major renovations (such as a home addition). Money is released on a draw schedule at various stages of the project. These loans are not designed for minor renovations and are difficult to qualify for. Construction loans are normally followed by a home equity loan to pay-off the construction loan with superior re-payment terms.
Borrowing from the 401K. 401K’s are retirement savings plans sponsored by an employer: you put away a piece of each paycheck before taxes and that money sits in investments until withdrawn. Most programs permit you to borrow from your account and pay back over 5 years, with payments deducted from your paychecks. The risk is if you leave your job the balance will be due immediately.
Federal Housing Administration 203k Loan. The FHA 203k loan allows you to borrow money for home improvement and purchase at the same time. The loans are guaranteed by the Federal Housing Administration, so the FHA will often make the loan where other bank lenders would be scared the collateral is in poor condition. One downside is that if the home is in very poor condition, you may not be able to live there while repairs are on-going. These loans are limited to owner-occupants (not investors) and for one to four unit properties. The advantages of the FHA loan is it is easier to qualify for and has low interest and fees. FHA 203k loans in most cases require a 72% debt to income ratio and a 580 credit score for qualification.
Look To Sell your House? Make Repairs v. Selling “As-Is”
Home sellers are faced with a conundrum: sell my house “as-is” or sink money and time into repairs. On one hand, if you make the right repairs you can sell your house for a higher price. On the other, if you don’t mis-manage repairs, you can spend a large chunk of change and not make that money back. Here are the key considerations when deciding whether to make improvements before selling:
- Available Money. As discussed above in detail, there are various ways to secure funding to do home improvements. If you can’t get enough money to do it right (and make “budget” level repairs that simply don’t look good), that will turn off to prospective buyers.
- Time To Fix It Up? Are you tied up with work and family obligations? Managing contractors properly takes time and careful monitoring. Unscrupulous contractors will takeadvantage of you if you’re not paying attention.
- Where you live. Managing repairs if you live far away is nearly impossible. You will not get a good result for your dollar if your not available to see the work that is being done regularly. Even worse, if nobody is overseeing the property, there is a risk of squatters, robbers, and vandalism.
- Level of repairs? Anyone can handle paint job. However, a complete and total renovation can be overwhelming if you don’t know what your doing It’s best to leave repairs to a professional experienced in managing long-term rehabilitation projects.
If you are selling a property “as-is” that needs big time repairs, that home buyer is unlikely to qualify for a mortgage (most houses need in good condition to qualify for a mortgage). You need a cash offer. You can find professional cash home buyers on the internet, like us, House Heroes. Fill out the form below to get your fast, fair, cash offer no matter the condition of the house!
We Buy Houses!
Call Us (954) 676-1846 Send Text Send Text Send Text Send Text Send Text Send Text Send Text or Fill Out This Form For Your FAIR Offer.
