Now that you have decided to move forward with your home remodel, you’ll need to consider how the project will be financed. Your financing options will vary based on how much you expect your project to cost. There are a few ways to pay for your home remodel project, from paying in cash to refinancing your property. Let's look into the best ways to cover your remodel and and the pros and cons of each.
How will you pay for your home remodel?
Here are a few ways to get the cash you need to update your home.
Pay for Your Home Remodel with Cash
If you already have funds in the bank to cover the cost of your remodel, that’s great! Paying with cash allows you to avoid paying interest on any borrowed money. With this option, keep in mind that construction costs can occasionally run over budget. Learn more about how to avoid going over budget here.
PRO TIP: Have extra cash on hand: 5-20% of the overall budget depending on the builder. Some, less experienced builders may not plan for the unexpected or do a thorough enough inspection in the quoting phase. Should unexpected expenses arise during your home remodel, you’ll still have enough cash on hand to cover the cost. Need help finding an experienced and professional contractor to help reduce unpredicted costs? Check out our guide to choosing a professional contractor.
Get a HELOC to Pay for Your Home Remodel
If you have equity in your property, you can get a Home Equity Line of Credit (HELOC) to pay for your home remodel. A HELOC gives you flexibility with how much you can borrow.
For example, let’s say you qualify for a HELOC of $75,000. When it’s all said and done, your remodeling project cost a total of $50,000. A few months down the road, you may want to tackle another remodeling project. Since you still have $25,000 available in your HELOC, you can withdrawal this money to pay for the second project.
A benefit of this financing option is that you only pay interest on the amount of credit that you use and are not obligated to withdrawal the full $75,000.
Refinance Your Property to Pay for Your Home Remodel
Another financing option for homeowners with equity in their property is a cash-out refinance. This option is great for homeowners who want one mortgage payment, instead of two payments in the form of a mortgage and a HELOC.
You may also qualify for a FHA 203K Renovation Loan. This is a government-backed mortgage product that includes the cost of a home remodel as part of the refinanced loan. If you are short on equity, this might be a good option for you to look into. You can borrow up to 97.5% of the expected value of your newly remodeled home.
However you decide to pay for your home remodel, make sure you keep track of how much you’re spending. Track your budget and spending on spreadsheets to help your project stay on target. A reputable contractor will have regular meetings with you throughout the process, to keep you in the loop on any plan adjustments, reallocations, or additional expenses.
Do you have questions about setting your home remodeling budget?
Let us know! We've been working on homes in Bucks and Montgomery Counties for more than 30 years. We are happy to help. Contact us here.
