Deciding to remodel your home can be a major undertaking. But because of the benefits it provides, more and more Americans are renovating their homes. In 2017, homeowners were expected to invest upwards of $316 billion in home remodeling, compared to the $296 billion they invested in 2016, according to the Wall Street Journal.
Perhaps the most common reason people remodel their homes is that it allows them to enjoy additional space and live more comfortably. Beyond that, home renovations help increase the value of your property. With the right approach, you can make energy efficiency improvements, too—lowering your utility bills while protecting the environment at the same time. Finally, remodeling your home is a way to make sure it doesn’t fall into disrepair.
The benefits of home renovations speak for themselves. Unfortunately, HomeAdvisor reports that the average cost to remodel multiple rooms is $42,220.
Not everyone has that kind of cash lying around. How, then, can you afford a home renovation?
It Starts with Financial Planning
You won’t suddenly decide to remodel your home and begin the work the next day.
Instead, you’ll spend a good chunk of time planning, researching, and thinking ahead about what the project might look like, what materials might be used, and when the project might get underway.
The same holds true for your finances. If you’re wondering about how you are going to afford your remodeling project, you need to start planning ahead right away.
The earlier you start financial planning for home renovations, the better situated you’ll be when it comes time to break ground on the project.
Practical Home Renovation Budgeting Advice
Once you’ve decided to renovate your home and have figured out a rough idea of what your project might look like, it’s time to start budgeting and estimating your costs and what you can afford.
To ensure you’re getting the best deal, get quotes from several contractors. Even if the first contractor gives you a price that sounds beyond reasonable, you never know when another contractor might offer a considerably better deal.
Be sure to factor unexpected expenses into your budget, too. Something unpredictable is almost certain to turn up in projects like this. Maybe you uncover some rotten floorboards you didn’t know were there. Or maybe there’s water damage you weren’t aware of that needs to be addressed.
You may be able to secure up to $7,500 in government grants to help cover the costs of your renovation. Do a quick Google search to see if you qualify.
Three Ways to Finance Your Renovation
Even if you qualify for the maximum government grant and have a few thousand dollars sitting in your bank account, you may still need additional financial assistance to cover your home renovation costs.
Here are three financing options you should consider:
1. Lines of credit.
A line of credit is a financing option that gives you access to a fixed amount of cash. Unlike a traditional loan, however, you only have to pay interest on the money you spend. Let’s say you secure a $50,000 line of credit but only end up needing $20,000 of it for your renovation project. You’d only have to pay interest on the $20,000—and you’d still have access to the $30,000 you haven’t touched in the event you need it.
2. Refinancing your mortgage.
You may be able to pay for your renovation project by refinancing your mortgage and lowering your monthly payments. For example, imagine your monthly mortgage payment is $2,500. You refinance over a longer term and now you owe $1,800/month. That extra $700/month could be used to offset your remodeling costs.
You may also have the option to do a cash-out refinance. If you’ve paid down your mortgage or if the value of your home has increased, you can refinance and get some of the money back for home renovation projects. For example, if your original loan amount was $160,000 but your home value has increased to $200,000 and your current loan is $50,000, you would quality for a cash-out refinance that could go toward home renovations.
3. Home equity loans
If you have equity in your home, you can take out a home equity loan to pay for your renovation. Quite simply, home equity loans involve borrowing a lump sum against the value of your house. You can then use that money to consolidate debt, go on a vacation, or, of course, finance your remodeling project.
Once you’ve decided to remodel your house, it’s perfectly reasonable to start getting excited about the future. But before you fully celebrate, you need to start financial planning to understand how you are going to pay for the pricey work.
If you can’t afford to pay for the renovations out of your own pocket, a line of credit or home equity loan may be the perfect financial vehicle for you. In other instances, refinancing your mortgage might make the most sense.
Whatever you decide, figuring out how you’re going to finance your remodeling project is a major decision—but one you don’t have to make completely on your own.
Partner with a community bank that can advise you as to what your options are during the process. That way, you’ll get the expertise you need to help make the best financial decision so that you can enjoy your newly renovated home for years to come. Get in touch with our team here!