Whether you’re fixing your forever home, looking to sell your own home online, or becoming a landlord, renovations are an important part of homeownership. But with costs increasing for supplies and labor, paying for these updates can add up quickly.
High costs shouldn’t keep you from making your renovation plans a reality. Here are five ways to afford a home renovation.
1. Start a Savings Account
Paying for renovations with cash is the most straightforward approach. If you plan on remodeling in the future, start setting aside money for your projects as soon as possible. To maximize your savings, open a high-yield savings account so your cash stash can earn interest and help you reach your goal sooner.
How much money you’ll need to set aside depends on the size and scope of your renovation project. You may need to delay your plans for months or even years.
If your renovations are urgent, such as updating a bathroom that barely functions, or you plan to sell your home soon, relying on savings alone may not be an option.
2. Get a Home Equity Loan or Cash-Out Refinancing
You may be able to secure the money you need for your home renovations by getting a home equity loan or refinancing your home with a cash-out option.
With a home equity loan, you essentially take on a second mortgage. Like a mortgage, you use your home as collateral. The good news is these loans tend to have a lower interest rate than a personal loan.
You may also be able to refinance your home to get a new mortgage that’s more than what you currently owe. The lender will pay you the difference in cash, which you can use toward your renovations. However, you’ll continue making monthly mortgage payments, likely at a higher amount.
3. Take Out a Loan
Taking out a home repair loan can be particularly helpful if you’re in a hurry to remodel. These are personal loans available from banks and online creditors. You will not have to use your home as collateral in the terms of your borrowing agreement.
Although these loans are typically easier to acquire, convenience comes at a cost. Expect to pay a higher interest rate on the borrowed amount than you would with a home equity loan or by refinancing your house.
If you are renovating to help with the sale of your home, consult a local real estate agent, who can put you in touch with lenders, contractors, and personnel to help you complete projects on your timeline.
4. Use Credit Cards
If you don’t have cash, paying for renovations with a credit card is another way to complete repairs that need to be made quickly. If you already have a credit card, you may be able to increase your limit to cover all of the costs.
Otherwise, you can apply for a credit card. Give preference to the company that gives you the lowest interest rate and the most perks. If you earn cash back, you can use it to repay your loan.
Like with a personal loan, it’s best to use credit cards if you plan on repaying the borrowed amount quickly to avoid paying a lot of interest.
5. Earn Extra Income
Rather than working a second or third job to earn extra cash, you can put your home to work for you. Build your renovation fund by renting a room or the basement in your house.
You can look for a long-term tenant or take on temporary visitors as an Airbnb host. Even if you aren’t interested in being a landlord forever, taking on temporary tenants or a roommate can help you complete your renovation goals more quickly without taking on debt.
If you don’t have time to manage a vacation rental or residential rental property, you can enlist the help of a property management company. Even while paying a portion of your profit to a third party, you’ll still be able to build your savings to cover the costs of your renovations.
5 Tips to a Home Remodel Project that Won’t Break the Bank
