Pursuing a home remodel can prove a major undertaking. However, because of the benefits it provides, more and more Americans are renovating their homes. The 2023 Houzz & Home Study showed a 22 percent rise in the median amount of money homeowners spent on home renovations in 2022. This shift caused the median expense of these projects to increase to $22,000.
Perhaps the most common reason people remodel their homes is that it allows them to enjoy additional space and live more comfortably. Beyond that, home renovations help increase the value and curb appeal of your property. Plus, with the right approach, you can make energy-efficiency improvements to lower your utility bills while protecting the environment. Remodeling your home also ensures it doesn’t fall into disrepair.
The benefits of renovated homes speak for themselves. Unfortunately, Angi reports that the nationwide average cost to remodel multiple rooms is a whopping $47,000. Realistically, not everyone has that kind of cash lying around. How, then, can you afford a renovation project when you need it? Financing a home renovation might be the solution.
Start with Financial Planning
The complex decision to remodel your home isn’t made overnight. This undertaking, regardless of scope, demands significant planning, researching, and thinking ahead about what the project might require. You may consider what it will look like, the necessary materials, and the preferred time frame.
The same preparation holds true for your finances. If you’re wondering about how to afford your remodeling project, try to start planning right away. The earlier you start actively budgeting for home renovations, the better situated you’ll be when it’s time to break ground.
Advice for Budgeting and Financing a Home Renovation
Once you’ve decided to renovate your home and have a rough idea of your desired outcome, you can start estimating and comparing various costs to develop a budget.
Collect quotes from several different contractors to compare pricing and service offerings. This way, you can ensure you’re receiving the best deal on your project.
Be sure to factor additional, unexpected expenses into your budget too. Something unpredictable often occurs with home improvements. Perhaps you uncover some rotten floorboards, or there’s hidden water damage you need to address. Maybe the home isn’t up to code according to new legislation.
Regardless of the issue, most experts recommend allocating a 10-20 percent buffer (depending on the age of the home) to cover any unforeseen costs.
Three Ways to Finance Your Renovation
Some homeowners qualify for government grants and have a few thousand dollars built up in savings. However, you may still need additional financial assistance to cover the remaining costs of your home renovation. Read through and consider these three common financing options:
1. Lines of Credit
A line of credit is a financing option that provides the homeowner access to a fixed amount of cash. Unlike a traditional loan, however, you only have to pay interest on the money you spend.
Example: Let’s say you secure a $50,000 line of credit but only end up needing $20,000 for your renovation project. You’re only responsible for the interest on the $20,000 needed. Plus, you would still have access to the remaining $30,000 you haven’t utilized in the future should you need it.
2. Mortgage Refinancing
Many owners choose to pay for a renovation project by refinancing their mortgage. This option extends the time period for the repayment but decreases the amount in monthly payments.
Example: Your monthly mortgage payment is $2,500. You choose to refinance over a longer term, lowering the cost to $1,800 monthly. That extra $700 per month could be used to offset your remodeling costs.
Many homeowners may want to consider a cash-out refinance. These conditions apply if you’ve paid down a good chunk of your mortgage or if the value of your home has increased. With this option, you can refinance and get some of the money back for home improvement projects.
Example: Perhaps your original loan amount was $160,000, but your home value has recently increased to $200,000. Let’s say your current loan is $50,000. You would qualify for a cash-out refinance that could go toward home renovations.
3. Home Equity Loans
If you have equity in your home, you can take out a home equity loan for remodels. To pay for your renovation, this type of loan borrows a lump sum against the value of the house. You can then use that money to consolidate debt, finance your remodeling project, or for other substantial one-time expenses.
Revitalize Your Space with Affordable Home Upgrades
Once you’ve decided to remodel your house, it’s perfectly reasonable to get excited about your home’s future. But before you celebrate, you need proper financial planning to understand how to cover the costs responsibly.
A line of credit or home equity loan may be the ideal financial avenue for you. Other homeowners may choose to refinance their mortgage. Regardless of your choice, figuring out how to finance your renovation is a major decision. Luckily, you don’t have to make it completely on your own.
Partner with a reliable community bank that helps you through the process of financing a home renovation. That way, you can make the best financial decision for your family and enjoy your new space for years to come. Download our free resource, The Smart Homeowner’s Guide to Refinancing. Then, get in touch with the FSCB team today to start discussing your renovation project!
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