You want to remodel your Des Moines home, but how do you pay for it? Although some believe its best to pay for a remodel with cash, many homeowners are now choosing to finance their projects. Financing can allow you to start your project immediately instead of continuing to put it off until you've saved up. If you would like to finance your bathroom, kitchen, or other home remodeling project, there are a variety of options available. Take a look at some of the most popular financing options and the pros and cons of each to help you decide which is right for you:
Many loans require you to put up your home as collateral, but a personal loan does not. Homeowners are generally attracted to personal loans because there's no risk to the home. However, personal loans have a higher interest rate and cost the homeowner more money over time. These loans are also paid back over a relatively short time (no more than 7 years), so the payments can be steep.
A home equity line of credit, also called a HELOC, is a line of credit. Most mortgage lenders allow homeowners to borrow 80% of their home's total value, minus the amount they owe for their first mortgage. HELOCs function much like a credit card, enabling the homeowner to spend only what they need and save the rest. The amount repaid every month depends on the amount owed, just like a credit card.
When a homeowner takes out a home equity loan, they receive a lump sum of money based on the equity in their home and make fixed payments back to the loan until it is paid off. Many homeowners prefer home equity loans over HELOCs (home equity line of credit) because of the payments are fixed and predictable.
A cash-out refinance is a type of loan that pays off your existing mortgage with a new mortgage worth more than the amount you owe for your home. The difference is paid to you in cash. If you have equity built up in your home, this is a good option, especially if the interest rates available to you now are better than the interest rates available to you at the time when you purchased the house. Most cash-out refinances are capped at around 80% of your home's value.
Second mortgage refinancing is any type of refinancing that enables homeowners to take out a second mortgage by tapping into the equity in their home. If you're thinking about getting a second mortgage, talk to a lender to decide which type of second mortgage is right for you.
Credit cards are easier to get than other types of loans, but the high interest rates of a credit card cost the homeowner substantial money in interest if not paid off quickly. Credit cards are not the best option for homeowners who have access to other, lower-interest rate loans like a HELOC.
One advantage of a credit card is that the debt is not secured by the house. If the homeowner defaults on the credit card, they are unlikely to lose their home as a result. Not all contractors accept credit cards, so if you plan to pay with your remodel this way, double check that your contractor has the ability to process credit card payments.