1. Pay cash
The most obvious way to finance your home improvement project is to simply pay cash for it.
You can save up the money over time to cover the costs or do one small project at a time, paying as you go.
Not only do you save on any fees that you would incur with a bank loan you’ll effortlessly stay within your budget.
2. Use your credit card
Using plastic to pay for your home improvement project will allow you to purchase items you need but don’t have the cash for up front.
You may even get cash back or other rewards for using it, however, credit card rates are typically much higher than other types of financing so unless you anticipate being able to pay off your balance fast this might not be the best option.
3. Get a personal loan
If you’ve got good to excellent credit a personal loan could be an option to explore.
Although this loan type typically has higher rates than other types such as a home equity loan, it may not require any assets for collateral.
The paperwork is also much less for a personal loan – usually, just verification of income and identity should get you the money you need to finance your home improvements.
Note: To get the best rates for this type of loan you should have good to excellent credit
You’ll be expected to pay this loan back more quickly – usually within five to seven years – so your payments will be higher, but if you don’t want to tap into your home’s equity – or you’ve just purchased the home and have little to no equity – this could be an option.
Also, because of the limited paperwork needed, personal loans are faster and easier to obtain.
4. Refinance your mortgage
Refinancing is a common means of financing home improvement projects, but it only makes sense if you refinance at a lower interest rate than you’re currently paying.
It could lower your monthly payments, which could free up some cash you can use to pay for your home improvements.
A cash-out refinance is also an option, which lets you tap into some of the equity you’ve built in your home – usually as much as 80% of its value.
However, keep in mind that you’re financing short term costs with long term debt, so unless the improvements will increase your home’s value you might want to consider another financing option.
5. Home equity loan
Like a refinance, a home equity loan will let you use the equity you have in your home, only you’re adding a loan payment on top of your existing mortgage.
In this scenario, you’d receive a lump sum of money to use however you’d like.
Since a home equity lender will stand behind your original lender in getting their money back should you ever default, the interest rate for this loan type will likely be higher.
6. Home equity line of credit (HELOC)
A HELOC will let you borrow against the equity you’ve built in your home, however, instead of receiving the entire sum at once you’re able to draw money as you need it.
Like the home equity loan, you can usually borrow up to 80% of your home’s value.
This kind of loan will have what’s known as a “draw” period – usually about 10 years – where you can pull money out of the account to finance your improvements.
Your payments during this period will cover some of the interest and a little bit of the principal balance owed.
Next comes the “repayment” period of your loan. The payments during this time, which can last about 15 years, will usually be higher because you’ll be paying back more of the principal balance of the loan.
