Home remodeling is fun and adds value to your home

There are many different ways to fund your home remodeling

The high price of housing has led many Americans to consider remodeling or adding on to their house instead of selling it and buying a larger one or one that better suits their needs. That’s great; it’s generally cheaper to remodel a house than it is to buy a new one. On the other hand, that sort of work requires financing and the question of “how to fund it?” always comes to the surface.

In part one of this article, we discussed a few possible options for sources of funds - zero interest credit cards, loans or lines of credit from home improvement stores, and the old standby, home equity loans. Below we will take a look at a few other options that, while not as desirable, still qualify as possible sources of remodeling funds.

Home equity line of credit - Like a home equity loan, the line of credit uses your house as collateral for the loan. Interest rates are good and as long as you have some equity in your property, you shouldn’t have too much trouble obtaining the financing. Lenders particularly like to see these loans used for remodeling purposes; it assures them that the money will be repaid. Unlike a home equity loan, a line of credit has a variable interest rate. It also has the option of letting you take only as much money as you need, as you need it. You can obtain funds using special checks or a card that is similar to a credit card. You only borrow what you need, when you need it. For long-term, ongoing remodeling projects, this is a good choice. And, like a home equity loan, the interest on a line of credit is deductible from your Federal income tax.

Cash out refinancing - This is what we did when we added two rooms to our home a few years ago. We simply refinanced the entire mortgage when rates were low and borrowed enough additional money to fund the entire remodeling project. This method provides all of the funds that you need at once, and you can go ahead and get it done. The downside is that you will increase your house payment, and possibly extend the length of your mortgage. The interest is still tax deductible, so this is a good funding choice, especially for larger projects or for homeowners who are certain that they will remain in their house for a long time.

Retirement funds or 401(K) funds - We offer this suggestion for purposes of being complete; it’s not really a good idea. You should try to avoid borrowing from retirement funds if you can. The interest that you lose while using the money for other purposes cannot ever be recovered. And you need that money for much later, when you will be retired. You can use retirement funds if you feel that you have no other option, but it is far from the best choice.

These are some of the ways that you can fund a remodeling project, which will add function and value to your home. Some choices are better than others, and some will suit one borrower better than the next one. There are many choices, but no one solution that is perfect for everyone.