With the summer months quickly closing in, now’s the time to make a list of home improvement projects that you want to tackle. Common examples include a deck, patio, swimming pool, or fresh landscaping — and that’s just the start.
No matter what’s on your summer home improvement checklist, there’s an important question to answer upfront: how will you fund the project?
On the plus side, there are several ways to fund your project without putting your finances in a compromising position. Conversely, you may not be overly excited about all your options, thus limiting your paths forward.
Here are some of the most common ways to pay for a home improvement project:
If you have enough cash on hand to comfortably pay for your project, it’s often the best option. Not only does it eliminate the stress and time commitment of securing a loan, but you also avoid taking on debt.
Tip: you don’t want to empty your cash reserves to pay for a home improvement project, as you could soon end up regretting your decision.
2. Emergency Savings
Knowing the difference between a want and need is important if you’re going to use your emergency savings. For example, you may want a swimming pool but need a new roof. If it’s a true emergency, this is an option to consider.
3. Home Equity Loan
A home equity loan allows you to tap into the equity in your home to pay for your project. With your home as collateral, you can expect to secure a competitive interest rate when compared to other financial products. On the flip side, there is greater risk with this product. The bank could repossess your home if you default on the loan.
4. Home Equity Line of Credit
Just the same as a home equity loan, a line of credit allows you to tap into the equity in your home. The primary difference is that you’re not required to use the funds from a line of credit. Just the same as a credit card, you can draw from it as necessary.
5. Personal Loan
As an unsecured loan, a personal loan is not as risky as a home equity loan. But since you’re not putting up any collateral, the bank will charge a higher interest rate to protect itself.
Personal loans are available in varying terms to meet your needs.
By comparing the pros and cons of these options, among others, you should be able to settle on one that’s perfect for your project, financial circumstances, and finance-related goals. As one of the most important decisions you’ll make in the course of tackling your project, take as much time as necessary.