Navigating through the various types of home improvement financing options can be tedious and time consuming. Unless you have just purchased a brand new home, most homeowners are faced with the task of repairing or updating their home. Then the question of how you are going to pay for these renovations naturally follows. With so many ways to finance your project, things can get a little confusing. Here’s a quick breakdown of the various financing options for home improvement projects:
Home equity line of credit (HELOC)
This type of financing involves the lender using your home as collateral. It is a line of credit which is secured by the equity in your home. Most HELOCs charge a variable interest rate. Like a credit card, a HELOC is a revolving line of credit that you can continue to use as long as you keep up with your payments. These loans consist of a borrowing period that usually lasts about 10 years and is followed by a repayment period lasting 10 or 20 years. You only pay interest on the money you have borrowed and once the borrowing period is over, you repay the balance like a regular loan.
Home equity loan
Like a HELOC, home equity loans are based on your credit score, repayment history, and the equity in your home. However, a home equity loan comes with fixed interest payments for a fixed term. The loan resembles a home mortgage where you borrow a certain amount and make regular payments during a fixed repayment period. This allows you to plan your budget based on a more predictable payment schedule.
For a cash-our refinance, you refinance your mortgage and take cash out at the closing to cover the expenses of your home improvement project. While this is a popular way to finance renovations, you will need to do your research to see if this makes sense. Basically, you want to ensure that you will be getting a better rate and/or terms by refinancing your mortgage. You will also want to consider what the closing costs will be and if that is better than what you would be paying to finance your renovation another way. If you already have a great mortgage rate, this might not be the best option for you.
The upside of a personal loan is that it is unsecured and you won’t have to use your home as collateral. The way these loans are structured vary by lender. Some are fixed and some are variable rate. This is a good option for people who have not yet had time to build a lot of equity in their home. Getting a personal loan is also usually faster than a HELOC or home equity loan. Companies like FinFi, help facilitate these loans by giving contractors the tools they need to easily offer a variety of loan options using one application and allowing their clients to see what kind of offers they qualify for without affecting their credit. By connecting contractors with a network of lenders with one platform, FinFi makes offering financing easier and increases approval rates for borrowers across the credit spectrum.
A lot of credit cards have a much higher interest rate than other types of loans you can use to finance a home improvement project. In addition, many home improvement projects can have costs that go up into the tens of thousands of dollars. Therefore, you would need to be approved for a credit card with a high credit limit. However, if you are a disciplined spender, it is possible to find a card with a zero percent introductory rate. You would just need to keep in mind that after that period of time is over and interest kicks in, it will likely be higher than interest rates on other types of available financing.
As you can see, as a homeowner, you have a variety of options when it comes to financing your home improvement projects. If you work with a contractor who already offers financing through a company like FinFi, it could be possible to explore all of your options without having to visit various websites and filling out multiple applications. By partnering with multiple lenders, FinFi can show a mixture of financing options through one application. These options range from installment loans, to lines of credit as well as lease to own products and promotional offers, depending on what programs your contractor has opted into. Ask your contractor is they offer financing through FinFi and see if you can bypass the hassle of researching all of your options one by one.