Performing a fix-it job on your home has the double benefit of making your day-to-day life better AND improving the value of your dwelling. With that said, there’s not always a pile of money lying around to do needed maintenance or improvements. Luckily for you, there are ways to invest in your home without having to fork over the cash right away.
Local emergency repair loan
Many cities and area housing organizations have money earmarked for providing loans to homeowners wishing to make critical repairs to their home. NeighborWorks is a helpful resource for finding organizations in your area that provide these types of loans. Visit www.nw.org and click on “Find a NeighborWorks Organization” for more information.r
Title 1 loan
Offered by financial institutions but insured by the federal government, Title 1 home improvement loans can provide you with up to $25,000 for non-luxury home upgrades. You don’t need to have equity in your home, the repayment term can be as long as 20 years, and the interest rate tends to be very competitive. However, you should be aware that your home is being used to secure the loan. For more on Title 1 loans, visit the U.S. Department of Housing and Urban Development’s website at www.hud.gov.
401(k) or 403(b) loan
If your employer allows it, you may be able to take a loan from your retirement plan to make home improvements. The advantages of this option are that the interest is low, you don’t have to pay loan origination or closing fees, there aren’t credit score or home equity requirements, and you don’t have to risk your home if you’re not able to make payments. However, it’s important to remember that this choice could mean less money in your retirement later on. You also run the risk of having to pay back the full amount of the loan or face penalties should you leave your employer.
With a cash-out refinance, you get cash for the equity you have in your home. In essence, you replace your existing mortgage with one for a higher amount. You can then use that additional money to make your home upgrades. Make sure you are able to afford the new payment levels before you commit. Talk to your mortgage lender for more information.
If the total cost of your work isn’t too high, you may be able to use a credit card to pay for the upgrades. However, it’s wise to calculate the total time it will take you to pay off the debt and how much interest you will pay in that time. If you are making the repairs to increase the value of your home, it probably doesn’t make sense if the cost of the repairs plus the interest is more than the anticipated value added to your home. Also know that the interest rate for using a credit card can be significantly higher than some other options.
Unsecured personal loan
If you decide to pursue the option of a personal loan for the necessary work, make sure you calculate the full cost of the loan – including fees and interest – before committing. Given the lack of collateral needed, if the numbers check out, a personal loan can be a great option.
FHA 203k refinance loan
Through this type of product, provided by the Federal Housing Administration, you lump together your current mortgage and the cost of your non-extravagant home improvements. Talk with your mortgage lender about this option.
Home equity line of credit (HELOC)
If you have equity in your home – meaning you owe less on the home than its current value – a HELOC may be worth considering. Since it is a revolving line of credit, you can keep the account open long-term and borrow from it and pay it down repeatedly. The maximum amount you are able to borrow depends on how much equity you have. Understand that the interest rate on a HELOC is usually variable, meaning it could go up during the time you have the line of credit open. However, the interest rates on HELOCs tend to be relatively low.
Home equity loan
As with a HELOC, a home equity loan allows you to borrow from your home equity while using the home as security for repayment. Unlike a HELOC, the loan is a one-time disbursement, normally with a fixed interest rate. Whereas a HELOC can be better for an ongoing project, a loan may make more sense for a one-off fix or upgrade. You will pay loan fees, but like a HELOC, the interest you pay on the loan can be tax deductible.
In addition to the financing alternatives listed above, be sure to consult your local housing authority about grants or other incentives you might be able to qualify for.
Given the sizeable financial ramifications, it’s important to consider all your options when it comes to financing home improvements. Thankfully, you have several different choices and should be able to find one that fits with your situation and goals.