Having money saved is the best way to fund home repairs or renovations. If that’s not possible, there are other financing options to consider. People often wonder, “What does homeowners warranty cover?” Once they understand home warranty, a lot of homeowners find peace of mind knowing that they do not have to worry about the cost of repairs. This will definitely fund the home repairs that will occur over time.
These include credit cards (especially those with low-interest introductory offers), home equity lines of credit, and personal loans. They all have their drawbacks though, such as interest rates and repayment periods.
1. Use Your Cash
If you have the cash on hand, paying for a home renovation outright can help keep your debt level low. Set up an online savings account to easily store money that’s specifically earmarked for your project and keep tabs on how much you’re saving.
Likewise, if you’re facing an emergency repair and don’t have the funds to cover it, consider tapping into your homeowners insurance. But make sure to check with your insurer first to see if the repair is covered under your policy. If it’s not, you might need to look into disaster relief programs or a personal loan. The Department of Housing and Urban Development also offers a FHA 203(k) program that allows you to finance renovation costs into your mortgage. This can be a good option for homeowners who want to stay in their homes longer.
2. Take Out a Loan
Home improvement projects come in a variety of flavors. They’re generally categorized as a “nice-to-have” or a “need-to-have.” Regardless of the category, these kinds of projects require some sort of financing.
Credit cards, unsecured personal loans, and a home equity line of credit are some of the most common options for funding these costs. However, it’s important to understand how each one works before making a decision.
Home equity lines of credit (HELOC) allow homeowners to borrow against their home’s equity in a similar way as a second mortgage. They typically have lower interest rates than a regular mortgage, but there are some drawbacks. Then, there are home equity loans that provide a lump sum of money that must be paid back over time with fixed monthly payments.
3. Use a Credit Card
Many homeowners find themselves needing to finance home repairs at some point. Whether it’s a costly roof repair or replacing an outdated water heater, these projects are not cheap. Fortunately, there are ways to fund these costs without having to use cash or savings.
Credit cards are a great option to consider for financing these expenses. They are readily available, offer rewards and often feature a 0% introductory APR period.
However, it’s important to note that these cards come with some risks too. For
example, a big charge can increase your credit utilization ratio and negatively impact your score. Additionally, store cards usually offer shorter earning periods for rewards and higher interest rates than traditional cards. As such, a credit card is typically a last resort for financing home repairs.
4. Apply for a Home Equity Line of Credit
If you have equity in your home and can qualify for a loan with reasonable rates, borrowing funds against that equity may make sense. But before you apply, be sure to evaluate your situation and decide if a loan is right for you.
A home equity line of credit (HELOC) works much like a credit card, allowing you to borrow money on a revolving basis up to a limit set by the lender and paying interest on what you use. A HELOC also may provide lower rates than other common loans Footnote  and can be tax deductible.
An emergency home repair fund and careful budgeting may keep you from needing to rely so heavily on loans for repairs. But if you do need to borrow, remember that the smartest strategy is probably to find financing with the most favorable terms.
5. Apply for a Personal Loan
It’s best to avoid using credit cards for home repairs if you can, but if you’re in a pinch, you could use a personal loan or an FHA loan specifically designed for home improvement. Just be sure to calculate the interest rates and monthly payments before making a decision.
Ultimately, the right financing option for your home repair needs depends on your existing financial situation, how much equity you have in your house and whether or not your project is a remodel that can wait versus an emergency repair like a busted HVAC unit. If you’re unsure which route is the best one for you, it may help to consult with a certified financial planner. Alternatively, you could also consider squirting away a small portion of every paycheck to create an emergency home fund.