If you own an older home, or if severe weather has damaged it, repairs become almost necessary. Many home repairs will actually save you money in the long run. But sometimes you may need to borrow money to make those repairs. There are many options to consider when financing your home improvement project. Home improvement loans offer many options, but if the cons outweigh the pros, there are other options you can consider.
Family and Friends
One source of money for home improvement projects is family and friends. They can be a good potential source for funds, especially if not making the repairs would cause further damage to your home and would then increase future repair costs. When borrowing money from family and friends, think about how much you need, how much you can pay back, and how long you would take to repay it. Then approach your family member with your plan, and explain why you need the money. Suggest writing an agreement, so that you both have a written record of how much your family member is lending you and so that the repayment terms are something you can both agreed with.
Home Improvement Loans
Home improvement loans have many advantages over cash and home equity lines of credit when it comes to financing your home improvement projects. They have low interest rates, especially if you opt for a secured home improvement loan. They also provide more flexibility when it comes to deciding how you want to spend the funds. Taking out a secured home improvement loan also gives you more options when it comes to lenders because they’re more willing to lend money to people who will provide security for the loan. You can also deduct the interest you pay on home improvement loan payments from your income taxes, as long as you’re using the funds to “substantially improve” your primary residence.
Home Equity Line of Credit (HELOC)
Home equity lines of credit allow you to take on a loan based on your home’s value to make improvements. This isn’t a straightforward loan; instead, you’re getting a line of credit that’s worth as much as 80 percent of the value of your home, minus the amount of your home loan. These loans have a draw period and a repayment period. For the first 10 years, you can spend the money in your line of credit. Payments you make cover mostly interest and a little bit of the principal on the outstanding balance. For the next 15 years, you’ll make larger payments on the line of credit that include more principal.
These are just a few options available to you for making improvements to your home, but there are others. When deciding what option to take, consider how much you’ve paid off on your home, its value, how much you’re willing to pay every month to pay off your obligation, and how much the needed improvements will increase your home’s value. This should help to guide your decision on the best loan type for you.