As a homeowner, you probably have a list longer than your arm for little home improvements you want to make to perfect your living space. But, let’s be honest – the vast majority of us will never have the unlimited funds easily on hand to pay for them, no matter how many times we pray, make a wish, or buy a lottery ticket. So the big question is, how are you going to pay for your home improvements, renovations, and household emergencies?
We’re going to take a look at that particular subject today in a lot of depth. In an ideal world, cash is always the best option – not only does it keep you out of debt, but you also have the opportunity to strike a better deal with builders, suppliers, and planners. So, if you need to pay for improvements, there have to be other methods. Let’s get started on some of your options.
As we discussed above, cash in the bank is, without a doubt, the best way to pay for anything in life. If you have the money, use it, as you will find you get better deals from every company you work with, and you will also speed up your waiting times. There’s no need to consider the equity of your home, and once the job is done, you won’t have to worry about making payments for years after completion. We also discussed the fact that most people cannot afford to pay cash – but if you want to avoid debt or costly financial mistakes, then you need to look towards building up a savings account, which we are going to take a look at next.
Increase Your Savings
You will be surprised at how quickly you can bump up your savings when you are ruthless enough. And if you really want that extension or home upgrade, you should be prepared to put your money where your mouth is. Get a pen and paper and work out all your incomings and outgoings. Then it’s a case of increasing the former and reducing the latter. Regarding your income, think about ways you can raise some extra cash. You might get a part time job, hold a couple of yard sales and sell some old possessions, or maybe even put yourself up for some medical testing, which can pay pretty well. With regards to your outgoings, stop spending so much on unnecessary things. You could cut back on your Satellite TV subscription, or switch your utility provider. You might stop eating lunch out and bring sandwiches from home, too. Everything you do can either save or make you money, and if you put it all in a savings account, it won’t be long before you make significant inroads into paying for your renovations.
Accidents and household emergencies can catch you out when you least expect it. And unless you have built up a good savings pot or an emergency fund, it is likely that you will need some help. You might be tempted with something like a payday loan, but it’s important to understand the link between short term loans and your credit rating, however. While these type of ’emergency’ loans can be useful for improving credit, if you miss a payment you will get a big black mark. And ultimately, if you can’t pay back your loan quickly, you will end up paying an enormous amount of money. A better option – if possible – is to borrow some money from family or friends. Yes, it can be embarrassing to ask, but if they have savings and you don’t, it’s possible to make it more of a business deal. You could pay them back at an interest rate higher than the one they are currently enjoying in their savings account, while still saving a fortune on the rates offered by a bank or payday loan.
While credit cards can prove to be similar to dangerous animals if you mistreat them, with some prudent planning and razor sharp commitment, you could fund your renovations right now with no interest costs,. Your best bet is to look for a credit card with a long-term interest-free offer on payments. It will allow you to purchase your renovation on the card, and you have 12, 18 or possibly even 24 months to pay it back. One thing you need to be aware of, however, is that at the end of the interest-free period, interest rates soon stack up pretty quickly. And the longer you take to pay them off, the more likely you will be to take a financial hit.
Home Equity Loan
Of course, the mere fact that you are a homeowner can often mean you will be eligible for cheap loans. Why? It’s down to the fact that you have the capital to play with, and the bank or lender can secure your loan against the value of your house. But you need to be careful when it comes to secured loans. Sure, you can borrow almost as much as you like, depending on the value of your home. But if you can’t keep up with repayments, you may end up going down the path of losing your house altogether. However, home equity loans can be handy because you can borrow large sums at reasonable interest rates, which you can spread over long periods of time. Some home equity loans will allow you to pay them back over ten or fifteen years, although, of course, you will end up paying more in interest the longer your loan runs for.
Refinance Your Home Loan
Once you have paid off a significant chunk of your mortgage, you may be able to refinance. However, before you go through the process, you need to have a long, hard think about whether or not the refinancing will actually benefit you Typically, if the renovation doesn’t cost as much as the refinancing, and adds value to your home, it’s probable it will be worthwhile. In some cases, depending on the current interest rates, you will end up getting a cheaper deal than you are on, too, so you could win on two fronts by going down the refinancing your home loan route.
Get A Construction Loan
Construction loans are similar to home equity loans, although they tend to be harder to get and more expensive to pay back. Where they come in useful is when the cost of your renovation will actually exceed the current value of your home. In general terms, you will need to pay back a construction loan relatively quickly, so this is an option if you plan on doing some major renovations and then selling the house and moving on. There is something else you need to consider, too. You have to bear in mind that construction loans tend to be a little clunky in the way they operate. For example, you won’t get a lump sum in the vast majority of cases, and you will only get parts of your loan released when various stages of the work have been completed.
Tap Into Your Retirement Fund
In an ideal world, you should always leave your retirement fund well alone until you reach the appropriate age. But in some cases, it can prove handy. If you have been paying into a work pension, for example, you can borrow some of that money from yourself. There is interest to pay, of course, and although you will always be paying that interest back yourself, it will be at a rate lower than you will be earning if you were to leave your retirement fund alone. And don’t forget, because your work pension is intrinsically linked to your job if you lose that employment status you have to pay back that retirement fund loan straight away.
Government loans exist, too, and if your home needs a lot of repairs, you may be eligible. There’s the Green Deal, which you can use in a similar way to a standard loan, or a Home Repair Assistance Grant which could give you money to make vital repairs if you are having income problems. However, bear in mind that with both these loans, you will have to take out mortgage insurance until you pay the loan back – which will add to your costs, as well as the interest involved. Another federal loan to consider is the Renovation Grant. If you qualify, you can get a significant to make your home improvements, and terms can last for up to twenty years. The great thing about these loans is that you don’t need any equity, so you can apply for them as soon as you buy a new house, and start making your improvements right away. Renovation loans are typically offered at rates similar to the current market, so you could almost see them as an extension of your mortgage.
OK, so there you have it – a few ideas for funding your home improvements. It’s all well and good having ideas to make renovations and turn a house into the home of your dreams, but these ways of borrowing and paying for them could be the only way you turn them into a reality.