Can My Contractor Provide Home Renovation Financing?

5 MIN READ

Home improvement projects, not including routine maintenance, tend to cost more than homeowners think. Even though our homes are probably our biggest asset, representing our most significant investment, with possibly the highest returns—many homeowners cringe when discussing how much it might cost to repair or make improvements to their homes. According to HomeAdvisor, “Conservative estimates from market data and input from home improvement contractors nationwide indicate that as high as 75% of home improvement projects over $2,500 are currently financed.”

Is Financing A Home Repair A Reasonable Approach?

Consider this. We don’t think twice about financing vehicles that cost more than $30,000 (and that’s on the low end), but we cringe when faced with a home repair estimate of that’s half that amount. Why? According to personal finance advisor Dave Ramsey, “A brand-new car loses somewhere between 9–11% of its value the moment you drive off the lot. So, with a $30,000 new vehicle, you’re basically throwing $3,000 out the car window as you drive the car home for the first time!” A wise investment in your home will maintain or increase its value over time.

We live in our homes, not our cars. Our homes appreciate in value, so investing in home improvements is a much more financially sound decision to make. Nowadays, it couldn’t be easier to do this, and homeowners have many options.

Financing Home Repairs

Whether you’re thinking of re-siding your home, installing new windows, painting it, or renovating your deck. Addressing these home repairs now will maintain or increase your home’s value and make it more enjoyable to live in. But how do you pay for these repairs? Fortunately, there are plenty of financing options like getting a loan from your contractor, refinancing, putting it on a credit card, or obtaining a government loan (if you qualify).

What Should I Consider When Financing Home Improvements?

The first question to ask yourself when considering financing home renovation costs: What monthly payment can you afford?

There’s no reason to go through the trouble of financing a remodel if you’re stressed about making monthly payments. Consider what you want to include in the renovation project and how much you’re willing to pay for each feature. For example, if you’re going to replace your siding instead of repairing only those sections that need it, look into the price to determine whether it is worth it to you. You might be able to repair your siding and have enough money left over to do several other projects at the same time.

Ways To Finance Exterior Home Repairs

If paying cash is not an option, here are some of the ways homeowners can finance their home repairs:

You Can Quickly Get Financing From Your Contractor

As market conditions change, a growing number of homeowners are seeking project financing directly from their contractors. Additionally, an increasing number of homeowners want to retain their equity and keep their personal credit card balances open for emergencies. Many also prefer the easy-to-use and quick loan approval associated with most unsecured financing programs. Calculate your payments with our easy-to-use finance calculator.

To meet this need, many residential contractors are now offering financing for renovations and repairs. Applications are easy, and most people qualify. SFW Construction offers in-house financing to homeowners for projects from $1,000 to $75,000 with minimum monthly payments as little as $35 and interest rates as low as 4.99% (on approved credit). Most homeowners can get approved in minutes.

Personal Loan

Financing home repairs can be as easy as taking out a personal loan and is often the best way to finance if you’re looking for something “low-risk.”

The best personal loans are available through banks, credit unions, and online lenders, and you can usually get up to $100,000. If you have exceptional credit and are deemed a “highly-qualified” borrower, you can often acquire very low-interest rates. Most personal loans are unsecured. This means your home cannot be repossessed if you fail to make payments. Also, repaying a personal loan on-time will bolster your credit rating. Contact your bank or credit union to inquire about this type of financing.

Home Equity Line Of Credit (HELOC)

A HELOC usually has a lower interest rate than other types of loans because it uses your home as collateral. If you borrow and repay any portion of the money, you are free to withdraw it again later. You can withdraw money from a HELOC for 10 years and have 20 years to repay.

If you miss payments, the lender has a legal right to repossess the property to recoup their losses. Funding home repairs should never put your home at risk. Yet, many times they’re necessary to maintain your home’s market value. More information about HELOC Loans.

Home Equity Loans

You can also finance a remodel with a home equity loan. Unlike a HELOC loan, a home equity loan is distributed in one lump sum. It’s typically repaid over five to 30-years. Start at BankRate to learn more.

Refinance

Refinancing your home involves taking out a new mortgage to pay off the old one. Depending on how much equity you have in your home, it is possible to “cash-out” a portion of the equity when you refinance.

For example, let’s say your home is worth $300,000, and you owe $100,000 on your current mortgage. You refinance $150,000. In this scenario, $100,000 pays off the old mortgage, and $50,000 goes towards financing home renovations.

Your monthly mortgage payment might even drop even if you “cash-out” some of your equity. For many homeowners, paying for home renovations through refinancing is a great way to invest in home improvements. There are many options available, which might be a wise move anyway, depending on interest rates. Start by asking your mortgage broker (providing you have a good relationship with this person) for advice.

Credit Cards

Minor upgrades and repairs can be made using a credit card. However, unless you have an unusually low, fixed interest rate, credit cards are one of the most expensive ways to pay for home renovations. Even if you get a 0% promotional APR, it will likely expire in 12-18 months. Home renovation loans offer much longer repayment terms and lower interest rates. Unless you know you will have short-term cash available, you should reserve your credit cards for emergencies only.

Government loans

The U.S. Department of Housing and Urban Development (HUD) offers a program called the Section 203(k) Program. It allows you to include renovations in the amount financed for your mortgage, whether you’re purchasing a home or refinancing your current mortgage.

HUD also offers Title 1 Property Improvement Loans that can be used for financing a home remodel. You can use this type of loan to pay for home repairs, alterations, and improvements. It can be used alone or in conjunction with the 203(k) loan.

Save And Wait

If the home renovations you dream of are merely cosmetic, saving until you have enough to pay cash for the project can be wise. In many cases, cash is the best way to pay for home renovations. There are three main benefits of saving up:

1. The best design is one you will want to live with for years. Waiting gives you time to decide what you want.
2. Paying cash means not having to worry about repaying a loan.
3. Paying cash may help you stick with a budget. It’ll help you avoid impulsive purchases that could be tacked onto a loan amount.

For these reasons, many homeowners consider cash to be the best way to pay for home improvements.

Is Financing a Home Improvement For Me?

Like all tough questions in life, whether or not you finance home improvements is up to you. The best you can do is carefully look at your current situation, study your loan options, and make a decision you can be happy with when you’re ready. Whether you make improvements all at once or complete them as you can afford to, it’s good to know that you’re moving toward making a house your own and maintaining its value.

If interest rates are on the rise, decide if you can wait to remodel—finally, rate shop before settling on a lender. The perfect lender for you will offer the lowest interest rate and the best terms. Find the best financing for your home remodel before you start knocking out walls—your wallet will thank you.