You CAN You Afford to Renovate Your Kitchen! Here’s How…
Your kitchen cabinets are totally outdated, and the peeling vinyl countertops are nothing but an eye-sore. It’s time for a kitchen overhaul, but how exactly are you going to come up with the funds to pay for it?
Instead of dreaming about a new kitchen, make it happen with these financing strategies.
Tap Into Your Home Equity
Probably one of the easiest and cheapest ways to finance a kitchen remodel is to use the equity you’ve already built in your home. A home equity loan gives you the total amount of money up front to pay for the work that needs to be done all in one shot. After the money is taken out, it’s paid back in monthly installments.
This type of loan is not unlike a regular credit card: just take out the amount of cash you need, and pay back what you’ve used. The only difference is that the interest charged on a home equity loan is much lower than that of a typical credit card.
A new kitchen usually adds value to your home, which means you’ll actually be putting more equity into it my improving it. Depending on the extent of work being done, you could boost your home’s value up to 75% of the amount of money spent on the job.
Use Contractor Financing
Many contractors offer financing for work that they do. After an initial deposit is put down, the remainder of the money is paid back in installments over a specified length of time. Ideally, the contractor should be giving you a detailed invoice a number of times throughout the reno process.
Never pay a contractor in full up front for work that hasn’t been done yet. While the contractor is most likely an honest person, there are still shady people out there who have no problems scamming their unsuspecting clients and bailing in the middle of the job after they’ve gotten their money. This makes paying in installments an ideal alternative to paying for the work up front in cash.
Take Out a Second Mortgage
In addition to your first mortgage, you could take out a second loan registered against your home, and pay both of them back simultaneously. You’re allowed to borrow up to 80% of what your house is appraised at, minus whatever is left to pay back from your first mortgage. While this is a viable option, you should only consider it if you are certain that the added value to the home is more than the cost of the renovation.
Borrow From Pre-Paid Mortgage Payments
Some lenders might let you borrow any money that you’ve already prepaid on your mortgage. For instance, many homeowners may ‘double up’ their monthly mortgage payments when they’ve got a little extra cash to put towards their home loan. Similarly, they may put a lump sum towards the principal at the end of each year if there’s a surplus of money to do so. This money is then added to the principal on your mortgage, which you may be able to borrow against to help fund a renovation.
Take Advantage of a Title I Loan
There’s a program available through the U.S. Department of Housing and Urban Development that insures lenders who offer home improvement loans, and is known as the ‘Title I’ program. With this arrangement, you have to pay 1% of the loan amount, up to a maximum of $25,000.
Homeowners who don’t have enough equity built up in their homes can take advantage of a Title I loan, which features payment plans and interest rates that are usually affordable for most. Many kitchen renovations would qualify for this kind of loan, but you should still check with a local Title I lender to verify if your particular project does.
The Bottom Line
There are plenty of ways to get your hands on the cash you need to pay for your kitchen renovation. And if the job is done right, you can actually add value to your home, which essentially pays for the work itself. Talk with a trusted realtor to get some pointers about where to focus your renovation to get the most bang for your buck, and boost your ROI.
