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How to Pay For Your Home Improvement Project?

By Guest Author | July 23, 2012

Home improvement projects are always fun and refreshing for everyone but your pocket. Many people undertake a home improvement project and then give up on it midway because they don’t find good financing alternatives. Some don’t even think about it because of the same reason. Worry not, because in the following points, you will come to know about the ways and means in which you can easily finance your home improvement project:

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Credit CardsThis option is viable if the supposed cost is not a lot, a few thousand dollars at the most. Also, because the interest rates for credit cards are very high, you must make sure that you pay off your dues immediately.

Unsecured Personal Loans – The best thing about an unsecured loan is that your house isn’t tied to it, meaning that if somehow the payback is delayed, your house wouldn’t be at any risk. If you can manage to get an unsecured loan from a family member, that would be the best option. However, many banks offer these loans too but the sum is limited to about $10,000. Beware of non-bank options that charge unreasonable interest rates.

Home Equity – The best part about this option is the tax deductible interest that is fixed, thereby protecting you from the interest rates fluctuating against you. The bad part is that your house becomes the primary mortgage. Therefore, it entails a huge risk of foreclosure if you fail to make the payments. However, if you are planning on a big expenditure in home improvement, this is the way to go.

HELOC or Home Equity Line Of Credit is similar to Home Equity Loan explained above except for one thing. Unlike Home Equity Loan where there is one shot payment system, HELOC allows you to withdraw amount multiple times with certain restrictions on the maximum amount that can be withdrawn. The interest rate is variable but it is still tax deductible.

401 (k)This is a risky alternative because of the large amounts of penalties that the non-payment entails. Although the interest rates are fairly low and there are no qualifying fees, your retirement account could take a hit. This is because even though you pay back the amount, experts believe that your retirement savings would fall.

Title 1 Loans – These are similar to Home Equity Loans and HELOC in the sense that your house gets tied up in the form of mortgage but it doesn’t require you to have an equity interest in your house, unlike the other two. These loans are insured by the federal government and have many restrictions. The maximum amount is $25,000 but it isn’t available for luxury home improvement projects like building a swimming pool.

The best option would always be to use your own cash and get saved from all the problems of interest fluctuations, tax deductibility, mortgage, closing costs, penalties, et al. Never turn towards your contractor for financing because such loans are full of hidden terms and costs and are best avoided. For any more information on financing your home improvement project, you can click here.


Brenda Lyttle is an enthusiastic custom home builder. She loves her job as she helps people frame out their dream homes from their imaginary canvas into reality.

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