Should You Get a Home Improvement Loan?
Over the last couple of years, more homeowners have taken on the kitchen remodel or master bathroom upgrade they've been putting off leading to an increase in home improvements. Whether you're working on your fixer-upper or looking to make your home more appealing to buyers on the market, home renovations can help you make your vision a reality.
Turn “one day” into “today” with a home improvement loan for financing any home remodeling project, large or small. Learn how to get money to renovate your home through a home improvement loan.
Can You Afford to Renovate?
Before you apply for a home improvement loan, consider whether you can afford a renovation with your current budget. Some homeowners pay for remodels with cash, but this may not be an option for everyone. Paying with cash can require some patience, as the average cost of a home remodel in the United States in 2020 was around $35,000.
When deciding whether you should get a home improvement loan, ask yourself these questions to make sure you're not moving out of your financial depth:
1. Can Your Budget Better Handle a One-Time or Recurring Cost?
If you have the funds saved up for a minor renovation in the ballpark of a couple thousand dollars, it might be simpler to handle a one-time upgrade. However, even projects you pay for in cash can take months to pay off. A smaller monthly payment might be easier to handle. Before you decide the best way to finance a kitchen remodel or whether to take out a home improvement loan for pool installation, map out your payment schedule to see what your spending plan would involve.
2. Would Your Emergency Fund Take a Hit?
Your emergency fund is a safety net in case of a catastrophe like major injury or a loss of employment. Pulling from this reserve is generally not a good idea when completing a home remodel. It's safer to have several months of your income put away for emergencies before you spend thousands on a renovation project.
3. How Large Is Your Debt?
A 2019 survey found that over 51% of American households had debt in installment loans, while 45% had credit card debt. If you have these or other high-interest loans hanging over you, you won't want to add another monthly payment to the list. If you have the cash, it might be better to use it to pay off your debts before spending it on a renovation.
If you ask yourself these questions and decide on a home improvement loan as the best option, you can feel comfortable pressing “go” on your home renovation project.
When Should You Renovate?
The optimal time to renovate depends on how long you plan to stay in your home. Determine if your remodel will help you break even or gain a higher return on your investment in your home.
If you're going to contribute tens of thousands of dollars to your home renovation project but still keep at least 20% equity in your home, you could get an excellent return reasonably quickly if you resell soon.
If you want to spend up to 80% of your equity on a remodel, think hard about renovations, especially if you're selling. The extensive upgrades you add might appeal only to buyers with your tastes, leaving others to look for a more affordable home they can overhaul themselves. However, if you plan to be in your home for a long time, fixing that plumbing problem in the guest bathroom might be more important.
