Big home projects can be a great way to add value to your property and make it feel like a brand new home. But, before you imagine summer from your new in-ground pool, you have to decide how you’ll finance your renovation.
Whether you’re thinking of redoing your kitchen, refinishing your floors, or replacing the roof, here are three ways to finance a big home project:
Many people choose to finance home renovations by dipping into their savings, and it’s a good option if you have enough money available. While this can be a straightforward way to get the money you need, there are a few things to consider before taking this route. For starters, make sure you’ll have enough left over in case something unexpected comes up during the renovation. Dipping into your savings can also disrupt your long-term financial goals, so be sure to weigh the pros and cons carefully. Also remember that home renovations can be costly, so be sure to get multiple quotes before committing to anything.
Take out a home equity loan
Many homeowners choose to take out a home equity loan when they want to finance a big home renovation. This can be a good way to get the money you need for your project, but there are a few things you should keep in mind before you take out a loan. First, remember that your home equity is the amount of your home that you actually own – so if you default on your loan, you could lose your home. Also make sure you have a clear plan for how you’ll use the money – otherwise, you may find yourself in over your head financially. If you’re careful and thoughtful about taking out a home equity loan, it can be a solid way to finance your next big home renovation.
Take out a personal loan
If you don’t have enough equity in your home or simply don’t want to take out a loan that relies on home equity, there are other loan options. It’s possible to take out a personal loan, which lenders sometimes market as a “home improvement loan.” Personal loans typically tend to be for smaller amounts than home equity loans and the approval process tends to be shorter.
Take out a life insurance loan
If you have a permanent life insurance policy, such as whole life insurance or universal life insurance, these also offer loan options. These policies accumulate a cash value; once you’ve built up enough cash value, you’re able to take a loan out against it and use it for any reason. This includes home renovations. For many people looking to take on a big home project, it becomes an answer to the question, is whole life insurance worth it?
Choosing the right financing method for your financial situation
There are several different ways to finance a big home renovation. You can take out a loan, put it on a credit card, or tap into your home equity. But which method is right for you? It depends on a few factors, like how much money you need to borrow and how quickly you can pay it back. Always weigh the pros and cons and consider your options carefully before making a decision.
Utilizing the cash value through policy loans, surrenders, or cash withdrawals will reduce the death benefit; and may necessitate greater outlay than anticipated and/or result in an unexpected taxable event.