As a homeowner, you know just how expensive it can be to maintain your home. In 2017, the cost of home renovations and repairs is expected to reach an all-time high of $327 billion. From repairing a broken HVAC unit to fresh wall paint, the costs quickly add up.
Have you been putting off a much needed home repair project because of the cost? Lacking the cash to pay for the project upfront? The good news is that there are several options to consider if you need to finance house repairs. Here are 7 options to consider that won’t drain your bank account.
1. Apply for a Home Equity Line of Credit
A home equity line of credit, also known as a HELOC, is similar to a credit card. is a loan where a lender provides you a set amount of money that must be repaid within a set time period. In turn, the equity in your home is used as collateral for the loan. This is one of the best home repair loans to choose from because the repair costs benefit you in the end. As you make repairs and update your home, your equity will increase.
To apply for a HELOC, your home must first have equity. Most lenders will allow you to borrow up to 85% of your home's value, minus the amount you owe on the mortgage. Other factors that impact your qualification for this type of loan include:
?Credit score and history
?Monthly income versus monthly debt
?Length of mortgage
If you’re looking to make costly repairs to your home, this is a financing option worth considering.
2. Home Equity Loan
A home equity loan can be used to finance major expenses, to include home repairs. Home equity loans are similar to a HELOC in that your home is used as collateral for the loan. To quality for this type of loan, your home must be worth more than what you owe on the mortgage. One of the biggest advantages to a home equity loan is the low interest rate. Since this is a secured loan, you don't have to worry about excessive borrowing costs.
For homeowners with bad credit, this loan may be easier to qualify for than other financing options. With the right amount of equity in your home, you can loan a large amount of money to cover a large home repair project.
3. Refinance Your Mortgage
One of the most popular methods for paying for home repair costs is to refinance your home's mortgage. This allows you to convert your home's equity into cash. At the same time, you may also qualify for a lower interest rate which also keeps more money in your account! Before refinancing your mortgage, be sure you have enough equity in your home to cover the costs of your repair project. In most cases, liquidating your equity increases your monthly payments as well as the mortgage term.
4. FHA 203K Loan
While most use the Federal Housing Administration (FHA) 203K loan to purchase a fixer upper, this loan can also be used to refinance. The loan is backed by the FHA, which makes it much less risky for the lender as well as the borrower. With this loan, homeowners are more likely to get approved with a low interest rate. To quality for this home repair loan:
?You must borrow at least $5,000
?Your debt to income ratio must be above 31/43
?Your home will need to be appraised
For repairs under $35,000, you can apply for the Streamlined 203k loan.
5. FHA Title 1 Loan
Another FHA loan worth considering to cover home repair costs is the FHA Title 1 Loan. This loan allows you to apply for up to $25,000 for the cost of home improvements. The term can last up to 20 years. The FHA Title 1 Loan is ideal for homeowners who need to pay for repairs but don't have equity in their home.
6. Construction Loan
Planning to add an addition onto your home? If so, you may want to apply for a construction loan. These loans are meant for major home renovations, to include additions such as a sunroom or a garage. These loans are typically short-term loans and can be refinanced into a traditional mortgage loan once the renovation is completed. This loan definitely requires financial expertise, so work with a lender to determine if this is the best option for you.
7. Credit Card
One of the last resort options for paying for home improvement projects is using personal credit cards. This option is best for smaller repairs that you can pay off within the set term limit. Many lenders offer 0% credit cards with a year-long term. This will save you money on interest while giving you the money you need to fund your project.
Paying for the high costs of home repair may seem out of reach, but there are financing options to consider. If your home has equity, you can use your home to pretty much pay for itself!