How to Finance a Home Renovation or Remodel
For most of us, our remodel project won't be featured (or paid for) by HGTV. Since remodeling takes a lot of time AND, potentially, a lot of money, it's important to put some thought into how you're going to pay for your project before you get underway on the physical work. Here are a few ideas to get you started.
Credit Cards
In general, we believe avoiding using a credit card for major purchases unless you have the funds in your bank account to pay it off, as credit cards generally come with a higher interest rate and more significant late fees. But for small weekend projects, a low-interest credit card may be the best fit.
You can use a low-interest card that you currently have or apply for a new one. Several providers offer a low introductory rate for a specified amount of time (just be sure to pay off the balance in full before the introductory rate ends to avoid paying higher interest rates).
Home Equity Lines of Credit
When deciding how to fund your project, look at interest rate. How much are you being charged to borrow from your credit card? Chances are it's somewhere between 12-24%. Rates for a home equity line of credit (HELOC) are much lower. Big or small, you'll pay less in interest if you utilize a HELOC instead.
So how does a HELOC work exactly? It's a loan that is underwritten using your current home's value, so you will need to have some existing equity in your home in order to qualify. With a HELOC, you'll apply for and be approved for a certain maximum amount. From there, you can draw out and use only what you need. Expect to make interest-only monthly payments during a draw period, followed by principal-and-interest payments over the remaining term.
What about larger projects?
The cost associated with adding a bathroom, knocking down walls, or finishing a basement will likely be more than a credit card, or HELOC can finance. Extensive remodeling can out strip the available equity in your home, especially if system upgrades or major structural work are in your plans. (For example, adding a second story can easily set you back over $20,000, but you may only have $10,000 worth of equity in your home.)
WaFd Bank is Here to Help
When it comes to getting your finances in order for the ups and downs of life, a little planning goes a long way. Whether you're a seasoned budgeting pro or new to saving (check out WaFd Bank's account options while you're here), your local WaFd Bank branch is available to help you reach your financial goals. Open an account online, visit your local branch, or give us a call at 800-324-9375 to learn more and open an account today.
