Ways to Afford Home Renovations

house miniature

If you’re looking for extra cash today and you have a spare room or, even better, a home, now is an excellent time to join Airbnb. On average, a host earns about a thousand a month, depending on the location and availability of their property. The more rooms you have, the more income you can generate.

But before you can even participate in the business, you have to make sure the space is livable and ideal for your target market. You might need to renovate, and this one won’t come cheap. How can you afford it?

Here are funding options to consider:

1. Home Renovation Loan

What is a home renovation loan, and how does it work? A home renovation loan is a home equity loan designed to help homeowners pay for renovations and improvements.

With this type of loan, homeowners can borrow up to 80 percent of the “after-renovation” value. This number is the appraised value of your home after you’ve made improvements.

As one of the common types of home loans, renovation loans can include:

  • Fannie Mae HomeStyle: It is an all-in-one type of loan, where the amount covers both the purchase price and the cost of renovations. This is ideal for those who are trying to secure a property that needs sprucing up or fixing.
  • FHA 203k: This type of renovation loan allows borrowers to finance both the purchase price and the cost of the renovation itself. However, one can apply it only to a primary residence. Borrowers can choose a streamlined version, where they can borrow up to $35,000. This amount is excellent for more minor repairs.
  • Energy Efficient Loans: This type of loan is for homeowners who want to make their homes more environmentally friendly by improving insulation and adding renewable energy sources such as solar panels.
  • Jumbo Renovation Loans: They’re for borrowers with high levels of debt who want to renovate their homes.

2. Home Equity Line of Credit (HELOC)

A home equity line of Credit (HELOC) is a revolving type of credit, which means you can borrow money from a fund and pay it back over time. You can get your HELOC at the prime rate, which means it’s usually more affordable than other types of loans.

When you’re approved for a loan, lenders will give you a certain amount of credit based on your property’s value. HELOCs require you to pay interest only on the amount of money you take out, not the total amount available.

The biggest advantage of a HELOC is its affordability, making it easy for homeowners to renovate without taking on a lot of debt. Also, it can be easier to qualify for a loan, lending terms are often more flexible, and homeowners may get lower rates.

However, there are also disadvantages to consider. For example, if you don’t pay it back as scheduled, your lender can take legal action against you and foreclose on your house.

3. Refinancing

refinancing

If you’re still unsure how to finance your home renovation project, you can refinance with a competitive loan.

Refinancing is the act of getting a new loan to replace an old one. It offers the following benefits:

  • Lower Interest Rates: Refinancing to a lower-interest mortgage can save you thousands, especially if your current home loan has a variable rate that goes up at any time.
  • Reduced Monthly Payment: You can get a 30-year fixed-rate mortgage for the same monthly payment as your old adjustable-rate loan.
  • Updated Features: With the latest improvements in home loans, you can refinance your loan with cash-out options, low down payments, lower monthly payments, and other features that can benefit homeowners.

4. Bootstrapping

Bootstrapping is using your own money to pay for home renovations. This strategy requires you to take a little risk, but it can let you avoid long-term debt.

Some homeowners choose this option because they want complete control over the design and the budget. Others might struggle to qualify for renovation loans or don’t have enough cash for down payments or closing costs.

However, bootstrapping does have its disadvantages. For instance, homeowners who use this strategy are responsible for paying for unexpected expenses and other difficulties that can come up during the renovation process.

Some great ideas for bootstrapping include:

  • Crowdfunding: You can launch a campaign to raise money from friends, family members, and potential customers.
  • Savings: To boost your savings, reduce your spending, open a credit card for home improvement purchases, or take on extra work.
  • DIY Remodeling: If you’re skilled and experienced, this can be a great way to cut costs.

Renovations cost money, but these funding options should make your plans more affordable. Considering the huge financial rewards that await, doing these projects is likely worth it.

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