What do you do when your heart calls for brand-new marble tile in the bathroom, but your wallet promptly responds peel and stick? Well, if you own your home, you likely have options.
Let’s run through a few ways to pay for a home remodel so you can act upon your heart’s desires. Because peel and stick, really?
#1: Liquid Assets and Cash on Hand
If you have cash or assets to liquidate, then there’s no better option. You don’t want to leverage your home for a loan if you don’t have to, especially because the remodel will likely increase your property’s value. From ample savings to stocks that you’ve been planning on cashing out of for a while, should you have the holdings, use them.
At the end of the day there is no better way to pay for a remodel than using your hard-earned money.
A home equity line of credit is a type of loan you take against the appreciation of the house. Essentially, whatever equity is left of the home, you can use your property as security to acquire a low interest credit line. After your initial mortgage investment, this is one of the many benefits that come with ownership (particularly if the housing market has trended in your favor).
Tip: Use HELOCS for larger projects (typically home additions). Not only will you increase the property value with these remodels, but a HELOC can provide the type of capital needed for bigger builds. Want to add a pool? An outhouse? A new guestroom? If you haven’t already, consider a HELOC.
#3: Reverse Mortgage
Are you in your dream home? Are you ready to retire soon and this remodel is going to make your home that much more enjoyable? If you’re over the age of 62, you can take out a reverse mortgage, or a loan leveraged against the value of the property. A few benefits include:
- Unlike a traditional mortgage, you don’t need to make payments until you move or sell the home.
- The loan can’t exceed the home’s value, meaning you won’t bite off more than you can chew should you need to offload the property.
- A lot of reverse mortgages are federally insured
- The lender will make payments to the borrower, and the borrower can use as much or as little of the loan as they want.
However, reverse mortgages can go awry should the real estate market tank and the loan become more valuable than the property. But that could be said about every type of loan associated with a home. If this sounds like a viable option, it’s recommended that you use a reverse mortgage calculator to identify the cash you can borrow.
#4: Get Creative: Roommates, Supplemental Income
Another way to pay for a remodel is by being crafty. For instance, you could bring in a roommate for a limited term. This will help you reduce your overhead, allowing you to save for a remodel while they remain in their tenancy.
Additionally, you can find ways to generate supplemental income. If you have a skill set to leverage, platforms like Upwork and Fiverr allow you to meet clients, expand your network, and bid on jobs. You can also “plug into” low skill platforms like ridesharing services and food delivery hubs.
If you refer to #1, having the cash upfront—with no strings attached—is the best way to pay for your dream remodel. Plus, you might adore having a roommate. Or you might find a new career through your side hustle.
#5: A Renovation Loan
Did you know that you can take out a loan specifically for your renovation? The FHA (Federal Housing Administration) 203(k) is a loan that allows you to borrow money based on the future value of your property.
With that being said, a few restrictions apply:
- You often can’t use these loans for luxurious improvements (sorry, but that swimming pool isn’t a qualified improvement)
- You have to pay a down payment
- You might have to take out mortgage insurance
This is often a fantastic choice for homeowners that don’t have a ton of equity in their home, as it’s based on future appreciation.
Whatever You Do, Don’t Over-Leverage
Remodeling a home, aside from realizing your dream property, can also be an investment. Home improvements increase a home’s value. There’s a stark difference between two adjacent homes, in a hot climate, when one has a pool and the other doesn’t.
With that being said, a remodel should never compromise your finances. Be smart, diligent, and crafty in your remodel budget (and the way you acquire the money). There’s an adage that applies to home remodels—you want to have your cake and eat it too.