It’s easy for me to sit here day after day and tell you about how to put in sump pumps or replace a furnace, but the fact is that all of this stuff takes money. The tools and parts and even time means money in this day and age, and if you have a major improvement such as roof shingles, then you need to know how to pay for it.
Home repairs and improvements can cost anywhere from under $100 to over $10,000, depending on the size of the project. There are pros and cons to each way, and you need to choose the one best for you.
1. Saving over time: This is always the best way to do it, because it doesn’t require you to pay money back, and there isn’t any interest. If you have a low cost repair or one that doesn’t need to be done for several months, then you can create a budget and save the money for the repair.
2. Credit cards: Ugh, if there were a way I could eliminate credit cards from this Earth, then I would. They have outrageous interest rates, and it’s easy to get overwhelmed. Credit cards should only be used as a last resort. If you have an emergency repair, then you may need to use the credit card, but pay it back as soon as possible. The last thing you want is to get mired in credit card debt and interest payments.
3. Loans: The banks will generally have lower interest rates than credit card companies and a stricter payment schedule. There are three main loan types that can be used for home repair: personal, home equity and home equity line of credit. A personal loan is simply a loan provided by the bank. They take into account your credit score and any collateral you may provide. These loans tend to be smaller, since the bank’s risk is higher. These are ideal if you rent your home or if do not have much equity built up in your home.
Home equity loans are a lot like personal loans, except they use the equity in your home. If you take how much your house is worth and subtract the amount left on your loan, then that’s the equity. Depending on how much equity you have in your home, the loan can be as much as 80 percent of the total equity, so $60,000 or more depending on the value of the home. In many ways, this is similar to a second mortgage. There is a single lump sum payment and then a set payment plan with a start and end date.
Home Equity Line of Credit (HELOC) is like a large-scale credit card with a little better interest rate. The equity is used to decide how much of a revolving line of credit will be available to you. It’s basically like a credit card, where you are only charged for the amount of money you take out, and once that it paid back, with interest, the money is available again. This is good if you plan on spreading repairs out over several months or years. You don’t need a lump sum; instead, you have access to smaller sums over a long period of time.
There are pitfalls with loans involving home equity. If you default on the loan, the bank has the option of foreclosing on the property. You could be completely up to date with your mortgage payment, but still find your home being foreclosed on because of the secondary loans. This is usually a last resort for banks because the primary loan, i.e. the mortgage, must be paid first, and any money left over will go to the secondary loans.
4. Grants: You should check with your local state representatives or even home improvement stores and ask if there are any local, state or federal grants available. You can also check the website for Federal Housing and Urban Development. Grants are good, because they don’t have to be paid back. HUD also has access to low-interest loans for improvement, as well.
Paying for home improvements is never easy, and you always wish the money could go for something else. The hard fact is that no matter how much you love your home and take care of it, there will be a time when something goes wrong.
Image Source:flickr.com/photos/djlicious/2497052527/
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