Renovation projects allow you to breathe new life into your home and make it more comfortable. But if you’re not careful, your project can go way over budget and not live up to its great potential, especially due to inaccurate estimates, overly ambitious plans, unexpected costs, or timing issues.
If your remodeling dreams come crashing against the wall of financial reality, you don’t have to give up. Instead, follow these five steps to avoid a home renovation disaster.
1. Consider Taking a HELOC LOAN
A home equity line of credit loan (HELOC) is a second mortgage that lets you borrow money against your home equity. So, if your house is still worth more than you owe on your mortgage, you could consider applying for this loan to finance your renovation project.
HELOC loans allow you to borrow up to 90% of your home’s value and have a relatively lower interest than unsecured rates. Some lenders like SoFi.com can even offer you a HELOC loan of up to 95% of your home’s value to finance home improvements.
However, before you apply for a HELOC loan, consider the pros and cons. You should also shop around and compare multiple lenders.
2. Get a Personal Loan
Personal loans can also be another option if you cannot finish your renovations due to financial constraints. These are loans you could obtain from local banks or credit unions with a set repayment period and fixed interest rate. Most personal loan terms last anywhere from 24 to 60 months.
Many lenders require a good credit score to qualify for a personal loan. Otherwise, your loan application may not be approved. In addition, while some lenders may be willing to accept the application, they will likely charge you a higher interest rate and have strict repayment guidelines.
Personal loans may also include fees and penalties, such as origination fees and prepayment penalties, making them costly. Before applying, ask your lender if they have any hidden fees and penalties.
3. Use Your Savings
If you don’t qualify for any loans due to your credit score or want to avoid the high-interest rates, consider using your savings to finance your home renovation. Savings could be an ideal option for small remodeling projects.
However, using personal savings for renovations isn’t always available to many consumers who lack substantial savings accounts. Moreover, savings locked in long-term investments may not be immediately accessible when you need them.
4. Use a Credit Card
Select home improvement stores, such as Home Depot, offer credit cards to their customers. These cards often come with rewards on purchases made in-store, which could be helpful to homeowners who shop for all their renovation materials from one place.
Store-issued credit cards could be an option if you have a poor credit score, as most stores do not require an excellent credit history to qualify. However, one major drawback of these cards is that they limit your shopping to only one store. Therefore, you won’t earn any rewards if you use them elsewhere.
Credit cards could also encourage overspending, hurting your financial well-being. Fortunately, you can avoid this mistake by sticking to your budget and avoiding impulse buying.
5. Ask Family and Friends for Help
Often, asking family members and friends for help is one of the best methods to secure home renovation financing. Family and friends can understand your situation and personal finances better than lenders. When asking for help from loved ones, be sincere and honest about your plans and challenges.
Bur family members and friends might not offer much, especially for significant renovations, as their finances are also limited. Therefore, before asking for any financial help, it is essential to evaluate whether it is feasible for them to assist.
