When my wife and I were home shopping for our very first home, one of the biggest fears we had was that nearly every home we saw needed some sort of repair or a huge makeover! Back track to 2 years ago and we were putting almost 70% of our savings into the down payment. It was a huge risk and we weren’t in a position to think about buying and renovating at the same time.
Well, when you’re as meticulous as we are about saving and living a frugal life (to remind you, we live 26% below our means), we’ve been able to make significant updates to our home using our own cash $25,000 later. Yes, we did not use debt to pay for the renovations.
Now, I completely understand that not everyone is in the same position as we are but if you truly dedicate yourself to funding your home projects with cash I bet you that it can be done and it will be worth it in the end. Our personal philosophy is, if we don’t have the cash, we can’t have it. So, this leads me to my first method of paying for your home projects…cash.
If you plan to renovate your kitchen or to remove and install new floors, go out and get some quotes. If it’s going to cost you $6,000 then I’d challenge you to visit your budget and to make adjustments. I would divide $6,000 in to 12 months, which means you’ll need to save $500/monthly. Open a new high yield savings account and transfer the funds every month. This will come with a sacrifice, but trust me the feeling will be much sweeter and you won’t have debt! Now, if cash is not possible and you don’t want to wait 6-12 months to save up, there are other ways to fund your projects, but it may come with a price.
Refinance your mortgage
You could refinance and pull cash from the refinance. However, refinancing gets complicated and I recommend that you read one of my previous posts about the topic. It’s totally doable but there are a lot of moving pieces you need to be aware of.
Home Equity Line of Credit (HELOC) or Home Equity Loan
One of the main reasons Americans get a HELOC or equity loan is for home improvements! It’s a very popular option and the interest rates are competitive. My personal favorite is a HELOC because it offers more flexibility than the home equity loan. I recommend that you check out my previous post about this topic because there’s a lot to cover about these 2 types of loans.
FHA Title 1 loan
This loan is insured by the US Department of Housing and Urban Development (HUD). The one thing about this loan is that not every bank / lender is approved to provide it, so you’ll need to check their portal to find an authorized lender. Here are some of the terms they provide on their website:
Maximum Loan Amount:
- Single family house – $25,000
- Manufactured house on permanent foundation (classified and taxed as real estate) – $25,090
- Manufactured house (classified as personal property) – $7,500
- Multifamily structure – an average of $12,000 per living unit, up to a total of $60,000
Maximum Loan Term:
- Single family house – 20 years
- Manufactured house on permanent foundation – 15 years
- Manufactured house (classified as personal property) – 12 years
- Multifamily structure – 20 years
Personal loan or personal line of credit
Personal loans and personal lines of credits are great options as well. As opposed to a HELOC or home equity loan where you are borrowing against your home’s equity, these types of loans are purely based on your credit score. Also, your interest rates and monthly payments will be calculated based on the quality of your credit. My recommendation is to do a thorough search for the right lender and read their terms and conditions carefully. Some may be sneaky and charge you unnecessary fees.
If you need some tips to boost your credit score before applying for a personal loan or credit line, check out how I increased my score by over 100 points in less than a year.
Ask your contractor if they offer financing! Many of the larger contractors I’ve met, roofers and general contractors, work with a bank to offer financing OR you may be able to finance with them directly. From a business perspective that’s a HUGE risk to their accounts payable but that’s not your concern. 🙂
Your Credit card
The credit card is probably one of the first tools we all think about. However, I’m a preacher of paying your credit cards in FULL. The great thing about credit cards is that you can take advantage of the cash back or points reward programs! So the trick here is to save the cash and pay for the renovations with your credit card. When the statement comes through send that payment in full and you’re good to go!
Now, the other way to do this is to apply for a credit that offers an interest free promotion for 12 months. Now you’ve got 12 months to pay that project with ease!
Home Depot / Lowe’s credit card
These department stores are not a bad deal because they offer great terms! As of 8/23/17 Home Depot and Lowe’s offer 6 months financing for purchases of $299 or more. That’s not too bad either. Just make sure to pay it off in full within 6 months!
To sum this all up, I find that renovating your home and planning for home projects are super exciting. For me it’s great because my wife and I enjoy it and have a great time bonding about the vision we have for our home. The key is to find the most affordable method to fund your projects. Don’t get yourself stuck paying ridiculous interest.
If you find home renovations and funding the projects being too complicated, you may want to consider renting. Check out the differences between buying versus renting.