Dear Claire: What are Some Ways to Finance My Home Improvements?

Financing Your Home Improvements: Options and Considerations

I know, with the pandemic everyone is looking at their home and thinking, “Oh, I want to do this. I want to do that. I want to fix up this. I kind of want to change that.” There are multiple paths that you can take to make that happen. There might be some people out there that have cash in the bank, and they are able to do it. Great for you!

For people that don’t have the cash in the bank and maybe you have owned your home for a couple of years, perhaps you want to add a bathroom, or you just want to finish the basement, and make it a little nicer, so you have more space to hang out. These projects can often be paid for in a couple of different ways.

So, first and easiest right now is a home equity line of credit. These are great. The only downside to them is a lot of times they have a variable interest rate or they’re only fixed for a short amount of time. If you pull $50,000 out, let’s say, the way that those are structured is the bank’s going to say, “Okay, that first $50,000 you pulled out is fixed at this rate for x amount of years.” It’s by no means a 30-year loan like you’re used to with your existing mortgage. It’s one of those choices that if you don’t have a way to pay it off, it might be something you think twice about before you do it. That’s option 1. Option 2 is refinancing your house. If you have enough equity, you can refinance your property and pull money out. When you do that, you’re going to incur closing costs. They have to set up your impound account again and you’re going to pay for them to do that for the refinance. You might be able to get what’s called a ‘Cash Out Refinance.’ This means – say my mortgage was at $300,000 but my house is worth way more than that. So maybe I pull out $50,000 or $100,000. So now my mortgage goes from $300,000 to $350,000 or $400,000. So the payment’s going to go up. But you’ll have that cash to do all of those things that you might have wanted to do and it might buy you some time to stay in your current house. The third option is… well really that’s kind of the only two… I was thinking there was a third but it’s cash, or a home equity line of credit. You’ll hear people in the industry call it a “HELOC,” which stands for a home equity line of credit. There’s pros and cons to equity lines of credit and refinancing. The two differences between a HELOC and a refinance are the fees for a home equity line of credit are typically lower than they would be for a complete refinance.

If you’re thinking about financing your home improvements, call, text, or email me and I’m happy walk you through the steps. We also have great resources so that you’ll know what will add value to your house and what won’t. “Is it going to make the home really appreciate or is this just something that I want to do so that I don’t do it?” It’s a great reason for you to do your homework so that you know you’re not going to get a return on your investment, which is nice to know up front. So you know, “Okay, we’re doing this for us and nobody else might want it.” Anyway, it’s always nice to see you. I hope you have a great end of your day and stay tuned for more information! Of course, you want to check out more content that we have over on our Paris Group Realty, LLC YouTube channel. Take care. Bye.

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