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Homeowners’ Options for Financing Home Improvements

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A home improvement project can give a real facelift to your house, and if you’re planning to put it up for sale it can add to the value of the property. But a home improvement costs money. If you know the sources of financing at your disposal, you can save money on home improvement and get the house redone without having to stint on expenses.

If you feel that a loan is an option, get a credit score check first to get an idea of your eligibility.

Credit cards can help you with home improvement costs particularly if your project is a small one. Credit cards with introductory offers are a good idea. You can avail interest-free loans. You may also earn rewards in proportion to the amount you borrow using the card. Ensure that you’re in a position to pay back the loans in a timely manner. If not, then the accrued interests will make any perks worthless.

Check out credit cards issued by home improvement stores such as Home Depot. These cards may offer special deals on home improvement products, there are some good savings to be had here. You can also enjoy the usual introductory offers associated with credit cards. Keep an eye on the offer expiry date and ensure that you clear dues before this date.

Personal loans can be availed from a number of sources including banks and private lenders. These loans are unaccompanied by a collateral, and therefore attract a higher interest rate. Also the interest on personal loans is not deductible from the taxes you will be paying. There are many home loans that have some level of tax relief attached.

A HELOC – Home Equity Line of Credit – lets you avail a loan; the amount being secured against your equity in your house. HELOC rates usually begin low and then go up. You may be eligible for a tax deduction on HELOC loans. These loans are processed with little paperwork. The HELOC line of credit is a good option for remodeling projects spread over time. You draw on your credit, repay, then draw again. If you don’t borrow against the credit, you don’t have to pay anything.

Taking a home equity loan gives you the security of a fixed mortgage; however, the rate is usually higher than the initial variable mortgage rate. This being a second mortgage on the house, the paperwork is less. You may be eligible for a tax deduction on this loan.

Refinance is the best option for you if you’re planning a major home improvement. You’ll have to spend some time with the paperwork and be prepared to spend some money upfront. Use the equity on your home to refinance this upgrade. If you already have a mortgage on your property, a refinance may be an alternative to consider over a second mortgage.

A Title I loan insures lenders against losses and is therefore available at lower rates to homeowners. You can avail this loan up to $25,000 for single-family houses. It is a good loan to avail for light to moderate remodels. You qualify for this loan even with little or zero equity in your home. If the value of your existing loans exceeds your equity in the property, then a Title I loan is an excellent choice. You can search for a Title I loan lender on the Department of Housing and Urban Development website.

If you’ve exhausted all alternatives, then you may want to dip your hand into that trusted cookie jar – the 401(k) or traditional IRA. You will be taking money from your account and paying back into the same account with interest. So, it’s not a bad deal but you need to be able to pay back on time for this to work. If you miss payments, you’ll face a 10% penalty. You also need the cushion of a job that provides you with (401k).


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