Options for Financing Your Home Improvement Project

If you want to remodel your kitchen, replace your roof or do any other type of home improvement project, you have to consider how you're going to finance it. Home improvement projects can be expensive, and you won't be able to begin until you've secured financing.

Some people wait until they can pay for their home improvement project entirely with cash. This is one of the best options for financing a home improvement project because it means you don't have to depend on any outside financing. However, it may

take years to save enough money to pay for your home improvements; thus, many people need to turn to other financing options.

Home Equity Loans
Home equity loans allow you to borrow money against the value of your home. Keep in mind that when you take out such a loan, you're putting your home up as collateral; taking out a home equity loan is like taking out a second mortgage on your home to pay for home improvements. This means that if you are unable to pay the loan back, the bank can foreclose on your home just like it can if you don't pay your mortgage. Use home equity loans only as a last resort so that you don't risk losing your home after the improvements are made.

Home Equity Line of Credit
If you have equity in your home, you may also be able to borrow money using your home equity line of credit. Like a home equity loan, this type of financing puts your home up as collateral. You can borrow up to the equity in your home. Interest rates vary based on your credit score and how much equity you have in your home.

Credit Cards or Unsecured Loans
If you're looking to finance only a few thousand dollars worth of home improvements, you might be able to get an unsecured loan from your bank or put the home improvements on your credit card. These solutions allow you to pay for the home improvements immediately and pay back the lender over time. You do not use your home as collateral, so you don't risk foreclosure if you find yourself unable to pay it back for any reason.

Refinancing Your Home
Sometimes you can refinance your mortgage to get cash in hand for a home improvement project. You can refinance your mortgage for a higher amount than you currently owe and get a cash loan of the difference between the new mortgage and the old mortgage. Keep in mind that you will be paying this loan back for years to come, so this option is best for long-term projects that will benefit your home's value over the course of years.

Borrowing Against Your Retirement Fund
If you have a stable job, you might consider borrowing funds against the money you have saved in your retirement fund. Usually the interest rates on these types of loans are very low, and you pay them back over the course of five years by allowing your retirement fund manager to withhold payments from each of your paychecks. If you lose your job, you'll have to pay the loan in full or face tax penalties for early withdrawal of retirement funds.

Title I Loans
Title I loans are federally-insured loans that you get from your local bank. These loans allow you to finance moderately priced home improvements regardless of the equity of your home; however, you have to put your home up as collateral. You cannot use Title I loans to fund home improvements that are considered luxuries such as installing swimming pools; these funds can only be used for projects that are necessary for safe living in the home such as repairing leaky roofs.

Ken Lyons writes for Express Roofing, a home improvement company that specializes in Westford, Ma siding installation.

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