4 Home Improvement Financing Options You Need to Know Before You Start

by Laurie Masera Garza
Home Improvement Financing

When it comes to home improvement or renovation, the loan options available to finance can be a bit mind boggling.

There are some important differences to be mindful of when it comes to your decision, and often depends on your individual circumstances.

Whether you decide to go with a secured loan such as a home equity line of credit (HELOC) or an unsecured loan type, you have several choices when it comes to funding a home renovation. This article will provide a quick overview of some common loan types, how they are structured and what to consider before you select the right option for you.

1.Credit Cards

Credit cards can work for smaller home remodeling projects, such as a fresh coat of paint or new bathroom vanity. But funding larger scale projects, such as a new kitchen or bathroom can be devastating to your credit and your long-term costs.

Cons of Credit Cards:

  1. With interest rates between 15%-24% APR, you’ll pay much more in the long run if you aren’t able to pay off the card quickly.
  2. Carrying a high balance on your credit card may negatively affect your credit score.
  3. If you use a retail credit card, the interest rates can be even higher.
  4. If you have surprise expenses during the renovation, and max out your card(s), you will have a difficult time getting a new loan based on the high balances.

You may also find that retailers encourage financing your home renovations on their store credit card, which sounds convenient if they include a special upfront rate, but be careful because store credit cards carry even higher interest rates than bank cards.
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2. Personal Loan

A personal loan is a short-term loan that is usually unsecured, but can also be secured by some form of collateral. This type of loan is delivered in a lump sum with a fixed rate, payment and terms. Personal loans normally have a lower interest rate than credit cards.

Cons of a Personal Loan:

  1. Upfront costs and interest rates can be high.
  2. Receiving the entire amount in one lump sum can lead to overspending.

3. Home Equity Loan 

A home equity loan is secured by your home’s value, meaning the equity in your home is the collateral for the loan. Home equity loans allow you to borrow a lump sum amount, have a fixed payment based on the payment terms. 

Cons of a Home Equity Loan:

  1. The upfront fees, which can include closing and appraisal costs, can be high.  
  2. Receiving all the funds at once can push you into spending more than you need

If you run into unforeseen expenses or costs, the amount you borrow may not be enough to complete the project.
4 Home Improvement Financing Options You Need to Know Before You Start

This article provides a quick overview of some common loan types, how they are structured & what to consider before you select the right option for you.

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4. Home Equity Line of Credit (HELOC)

A home equity line of credit, also called a HELOC, is a way you can pay for your home renovations that may help you save money in the long run. Like a home equity loan, a HELOC uses the equity in your home as collateral.

Because it is a line of credit, it is an open credit line, so it is similar to a credit card as you can borrow from it when you need the funds as long as you don’t exceed the credit line limit. While you only pay interest on the amount you use on the credit line, because there is a variable interest rate, the monthly payment can vary.

Benefits of a HELOC:

1. Save Money

HELOCs allow you to withdraw from your credit line as you need it, so you are able to manage your borrow amount based on your budget. Additionally, the upfront costs for HELOCs tend to be lower than other loan types. 

2. Flexible Terms 

If you find your costs for renovation expand unexpectedly, or you just decide to go bigger, many lenders will allow you to extend your credit line when the draw period ends. You may also be able to convert large withdrawals into fixed-rate loans.

Recall you only pay interest on the amount you withdraw, so you have the freedom to take a larger line of credit initially and decide how to use it as the project progresses.   

3. Improve Your Home’s Value

Besides offering more flexible terms and saving you money, remember that a HELOC uses equity in your home to collateralize the line of credit. If you’re using the HELOC for a home renovation, you’re probably adding to the home’s value. When you decide to sell your home, a HELOC may actually pay for itself.

You have already spring cleaned your house. You may have discovered some renovations that will improve your home. If you think it’s time to tackle those renovations, check out our competitive HELOC rates. You can call, click, or stop by a PrimeWay retail center today to get started on your HELOC application.

Author Bio

Laurie Masera Garza

Laurie is a digital marketing and social media maven who has more than 15 years of interactive multi-media experience under her belt. When she is not rocking the social media atmosphere, Laurie loves to find Houston’s hidden dining gems, but ask her about tacos. She loves tacos. In her spare time, Laurie loves creating, whether its art or memories.

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