What Are the Different Options for Home Improvement Financing?

D. Nelson

Home improvement financing refers to the ways in which a homeowner might pay for remodeling or redesigning his or her home. Minor improvements, such as painting rooms or rearranging furniture, might be time consuming, but they are rarely expensive. Larger improvements that include adding new rooms, installing a new roof, or adding a ramp for a wheelchair, on the other hand, can prove to be quite expensive and may require a lot of planning in advance. Options for home improvement financing include building up savings, getting a loan, purchasing an insurance policy, and possibly even applying for certain tax rebates.

Home remodeling projects may be paid for through home improvement financing.
Home remodeling projects may be paid for through home improvement financing.

A common option for home improvement financing is to build up a significant amount in savings. Individuals who plan on doing large amounts of work on their houses for the sake of improving appearances and increasing value may plan to do so years in advance. When an individual pays for home improvement out of his or her own savings, that person is avoiding paying interest on the costs of renovations or taking on a significant — and possibly damaging — debt to his or her credit score. On the downside, however, savings for large remodeling projects can take years to accumulate and may require sacrifices or lengthy work hours.

Homeowners who do not have the savings for home improvement financing may opt instead to take out a loan. Factors such as available interest rates offered by lenders and credit scores of homeowners often play into which kind of loan is most desirable. Government backed loans, when available, are sometimes the most popular since their interest rates tend to be lowest.

People who perform home renovations often hire contractors to perform some of the work. Many projects can be dangerous for workers, especially when roof work and the lifting of heavy objects are involved. In these cases, homeowners can benefit from having insurance.

While an insurance policy might at first seem like an added expense, it can also be seen as a safety blanket. Should a worker get injured while performing work on an individual's property, the worker may decide to sue a homeowner to pay for related medical expenses. This can drastically increase home improvement financing costs. Insurance can protect homeowners against the cost of unforeseen events.

Many individuals perform home renovations for medical reasons. Ramps for wheelchairs, filtering systems, and adjustments to the height of switches and cabinets can all be considered improvements for medical purposes. In many places, individuals can deduct the cost of these renovations from their taxes. This may also be true of any renovations that improve the energy efficiency of a home. People considering these kinds of home improvement financing may first want to consult an attorney or tax specialist.

Discussion Comments

anon281133

How long do I have to live in my home to get an equity loan for home improvements?

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