Thanks to American Express for sponsoring this post and supporting Beginning in the Middle! As always, all thoughts and opinions are our own.
You may love your home but want to update it to be more your style. You may have just bought a fixer-upper that you plan on DIYing little by little. Or you may still be looking for a home and are wondering how you’ll have the cash to remodel a distressed (but oh so perfect) property. Whatever the reason might be, home improvement projects can seem daunting, so it’s super important to start the process by doing your research. Getting quotes from architects, designers and contractors (multiple!), consulting with realtors on post-renovation property values, and figuring out how you’re going to pay for it should all be done before you start swinging the hammer. The more you know and plan for before you start, the better off you’ll be throughout the process.
Financing our projects is something we’re asked about all the time. We’re excited to be teaming up with American Express today to share our perspective.
1. HELOC (HOME EQUITY LINE OF CREDIT) OR HOME EQUITY LOAN
If you have equity in your home, you may be able to pull some of that out and use it for your renovation in the form of a Home Equity Loan or Home Equity Line of Credit (HELOC). HELOCs are flexible and have relatively low interest rates depending on your credit score. For owner-occupied properties, some banks will give a higher Loan-To-Value (your outstanding loan amount divided by the current market value of your home). Getting a HELOC on investment properties that you don’t live in is a little trickier, but there are banks out there that do them. On investment properties, banks don’t go as high with the Loan-To-Value and the interest rates are higher than owner occupied properties. When looking at HELOC options, be sure you talk with a few different banks and understand the fees and closing costs that each one charges before signing on the dotted line!
2. PERSONAL LOAN
Personal Loans are great because of their flexibility — you don’t need to have a certain amount of equity in your home, worry about closing costs, or have your entire renovation plan detailed for the bank before starting. A Personal Loan can be used for something as small as giving your bedroom a cosmetic upgrade or as big as remodeling your kitchen. As American Express ambassadors, we’re excited to share that if you’re already an eligible consumer American Express Card Member, American Express Personal Loans may be a good place to start.
– They offer loans of $3,500 – $40,000 with no origination fee and APRs starting as low as 6.98% to eligible consumer Card Members¹
– Find out more about eligibility and the quick application process, plus the full terms and conditions here.
3. 203(k) LOAN
203(k) loans are a type of FHA home renovation loans that include both the cost of buying a home and the cost of renovating it. This option is a good one to consider if you haven’t yet purchased your home, and you are going to be living there (FHA requires you to be an owner occupant for at least a year — that’s why they’re able to provide some of the benefits they do). There’s two types of 203(k) loans – streamlined (for smaller projects) and standard (larger renovations). One of the biggest pros of this type of loan is a down payment that is much lower than on regular construction loans. The cons are that you need to use a professional licensed GC (you’re not allowed to DIY), and you can’t use them on investment properties. Another con about this type of loan is that you can only have one FHA property at a time, so if you purchased a home with an FHA mortgage 5 years ago that’s now a rental, you can’t buy another home with an FHA or FHA 203(k) loan. In order to get around that rule, you’d need to either pay off that first home, refinance it into a conventional mortgage, or sell it before doing another one.
We’ve financed our projects a variety of different ways, depending on how large the project is, how long the project will take, and if it’s an investment property or our own home. If we don’t use cash, we try to find options that are flexible, low interest, and have easy repayment options. Have you ever financed a home renovation project? What was your experience?
¹ American Express Card Members must be pre-approved for a loan offer in order to apply. Pre-approved APRs and loan amounts are based on the Card Member’s creditworthiness and other factors. Pre-approved APRs will be between 6.90% and 18.97%, as of 3/2/2018. Not all Card Members will be pre-approved or receive the lowest APR or the highest loan amount.