How will you pay for your dreamy new remodel

If you’re planning a home improvement project, you’re in good company. The economy and housing market are recovering, home values and equity are rising, and many homeowners are beginning projects they had put off over the past several years. A recent report by the Joint Center of Housing Studies at Harvard University predicts that the home improvement industry could post record-level spending in 2015.

Creating your dream home could involve major work, like remodeling a bathroom or finishing a basement, or smaller changes, such as new landscaping — maybe replacing that thirsty lawn with drought-tolerant plants. As costs can range from $30 for a can of paint to six figures for big additions, a significant part of planning your project is financing. Numerous options may be available and it’s important to seek information from an experienced financial professional.

Kitchen remodels are among the most popular home improvement projects. photo/remodel works via wikimedia commons

“Many consumers aren’t aware of all the financing options for home improvement, or they may not have thought of those options to pay for the work they want to do,” says Kelly Kockos, senior vice president with Wells Fargo Home Equity. “Homeowners can start by defining a vision of what they want their finished project to look like, and talking with a banker or lender to explore how to pay for it.”

As you prepare to make decisions about financing, ask yourself a few questions to get started:

How much do you want to spend, and will you need access to funds throughout your project or one lump sum? You may not know your total budget but it’s important to have a good idea of what your project might cost.

Are you planning to do the work yourself or hire a contractor? If you are using a contractor, references and your own research can help you make an informed choice.

Will you need long-term financing or is short-term financing sufficient? If you intend to borrow funds, consider the monthly payment that would fit your budget.

Many financing options are available; among the most common:


Home equity line of credit

A home equity line of credit can provide ongoing access to funds using the equity in your home, which typically results in lower interest rates than unsecured credit. This type of credit may also provide potential tax benefits. Consult your tax adviser regarding the deductibility of interest.


Mortgage with built-in renovation financing

These help homeowners complete renovations with a loan amount that is based on an appraiser’s estimate of what the property value will be with completed improvements. This is also an option for aspiring homeowners who purchase properties that need repair. Whether a home purchase or a refinance, this option finances the renovations and mortgage in one loan.


Cash-out refinance mortgage

A cash-out refinance replaces your current mortgage with a new and larger mortgage that pays off your current balance and allows you to use the equity in your home to provide additional funds for other purposes.


Other options

Credit cards can be used for large or small purchases and may earn rewards, which can add up to significant benefits when you’re making big home improvement purchases. However, credit cards often have higher interest rates than other loan or credit options, which should be taken into consideration.

A personal loan or a line of credit typically offer quick credit decisions and access to funds in a day. Lines of credit also provide ongoing access to funds.

Accessing your savings, of course, might be an option: By paying cash, there is fast access to funds and nothing to repay.

Your bank can help you identify financial options, including their associated benefits and drawbacks, to help you make an informed decision. More information and tips on home improvement financing, including a financing option comparison tool, are available online at — brandpoint media