5 Ways You Can Pay for Your Home Renovations
You probably have some trendy decor ideas you’d love to try in your home and maybe a few much-needed upgrades, but home renovation costs don’t always fit into the budget.
Unfortunately, if you want to increase the value of your home before selling a lot of the best renovations you can do are also the most expensive: appliance upgrades, washroom remodels, finished basements, a new roof, kitchen cabinets, the list goes on and on.
You may have to pick and choose what you can afford to upgrade and what’s just nice to have, but there are five ways you can secure the funding you need to get your home ready to sell.
5 Ways to Pay for Your Home Renovation Costs
When you’re making your budget for home renovation costs, you want to make sure you’re going to get that money back in the sale of your home. That means you want to invest in the most worthwhile upgrades, which can force you to put out more money than you have on hand.
So what do you do? Settle for a lower listing price and call it a day?
There are actually five options to help you find the funds:
1. Save & Pay Upfront
If you’re looking to pay for home renovation costs without going into debt, it’s a good idea to save cash and pay upfront. This might mean scrimping and saving for a few months in advance, but on the bright side there are several significant benefits to paying for your project this way:
- No ongoing payments
- No high-interest rates
- No lending fees
- No surprise charges
2. Use Your Home Equity (HELOC)
A (HELOC) (home equity line of credit) is a loan structured like a standard line of credit. You can gain access to 80% of the equity in your house.
- To estimate the capital, you deduct your current mortgage liability from the market value of your property.
- Many homeowners take out a HELOC as a second mortgage.
- They do that because it frees up a large amount of the equity of your home.
- Even though a HELOC is a great solution, you’ll want to speak with a qualified mortgage specialist. They will know how to deal with your specific circumstance.
3. Refinance your Primary Mortgage
Another way to use your equity for renovations is by refinancing your primary mortgage.
With refinancing, you’ll be able to negotiate the terms of your mortgage and secure a loan. Your primary mortgage would most likely be done the same way.
The benefit of refinancing is that you will get a fixed interest rate, which will allow you to make small, consistent payments for the term. If you have good equity in your home and your credit score is in a great place, then refinancing could be your best option.
If there isn’t a lot of equity in your home, you might want to reconsider.
4. Secure a Second Mortgage
Taking out a second mortgage is an alternative to refinancing. If you choose to go this route, just know you’re borrowing against the equity of your home and your house will be used as collateral. With a second mortgage, you will have access to a large sum of money which could easily help cover a kitchen remodel or a new three-piece washroom.
It’s important to note that you’ll be subject to closing costs in most cases and the interest rates can either be fixed or variable. It may sound like a great idea to invest these financial resources back into your home, but without the right guidance you could land yourself in financial troubles. So be careful!
Here are a few things you may not know about second mortgages:
- There are some fees. A Second Mortgage is a great option, but they do come at a price. Speak with a professional about getting one, so you aren’t spending more than you need.
- How much can you borrow? It all depends on the amount of equity you have built up in your property. You will only be able to take out a portion of the capital. Lenders have restrictions, so be wary. For example, if you own a property valued at $500,000 and you owe $325,000, with good credit you could acquire a second mortgage for $75,000.
- You MUST compare interest rates. You should do your research into the various interested rates offered by different lenders. A professional mortgage broker can help you compare and find the best option.
5. Sweat Equity (aka DIY Renovations)
The cost of labour plays a significant role in exceeding your budget for home renovations. Homeowners will spend more on the labour than on the materials used, so people often resort to sweat equity or DIY options.
Some people are lucky enough to have the skills themselves or friends and family that are willing to lend their expertise, but not all renovations are DIY-friendly.
It’s best to make a wish-list of upgrades to your home and see what’s possible and what’s not worth your time (and the outcome – you don’t want it to look DIY.)
Not sure where to start with staging your home for the market? You can always talk to Our Team about the best ways to prepare your home to sell quickly and at the price you deserve.
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