With the recent downturn in the housing market, it is important to be both smart and creative when considering your financing options. Here are some helpful tips on budgeting for your home improvements.
“It’s really important to do your homework before making a decision,” says Edward J. Johnson III from the Better Business Bureau. “You should read and understand all parts of the contract and be aware of what exactly you’re financing and how it’s being financed.”
Work with a pro.
A pro will make you aware of all finance options that are available so you can make the best possible decision regarding the project.
Leverage the equity in your home.
Home equity loans are still among the most popular tools for financing home improvements. Since the loan is secured by a tangible asset (your home), you’re more likely to get a favorable APR (annualized percentage rate) than if you financed a project through an unsecured personal loan.
Consider construction-perm loans.
This lending tool involves the execution of a loan at the end of the project’s construction phase, at which point a “construction” loan is refinanced into a conventional home mortgage. With this type of loan, no matter what happens, you’ll always have a program and rate locked in.
Use retirement investments (401(k)s, IRAs) only as a last resort.
Avoid using assets that are already earmarked for retirement. Tapping tax-advantaged accounts such as 401(k)s and IRAs may seem like a creative approach, but ultimately it’s a move fraught with danger and tax consequences.
|Did You Know?
➤ It is a good idea to secure your loan prior to contracting with a home-improvement company. By doing this, you will know in advance what your budget is for the project.
➤ If you can’t summon the capital to complete the project through conventional means, it’s best to reevaluate the timing of your project.
Know Your Numbers