Home renovations can be fairly expensive—learn the best ways to cover the cost of your next transformation!
When you are looking for an opportunity to improve your home, it is pretty common for homeowners to put renovations at the top of their list. A home transformation can be an exciting opportunity for homeowners who want to fall in love with their home all over again, but there is something very important to consider—cost.
“The estimate on our home renovation came out to $120,000—that seems like a lot. How are we going to pay for this?”
“When I spoke with our general contractor, they said that there are a few different ways to pay. Let’s learn more about our options.”
Home renovations can cost a significant amount of money, likely more than you might expect. Since that is the case, finding the right way to finance your home renovation is very important. Though the dollar amount can seem a little intimidating, you might be surprised by how many ways you can pay to get the home of your dreams. In this article, we will explore our top suggestions for home renovations.
Why You Need to Think About Funding
The simple truth is that investing in a home renovation isn’t cheap, even if you’re only doing one room. For a full home transformation, you can expect the price of the work to reflect the significance of improving your home on such a big level. It isn’t uncommon for a full transformation to cost $100,000 or more. Even smaller home renovations can come out to be tens of thousands of dollars.
“I didn’t realize that a home transformation would cost this much. I mean, we just want a new kitchen, two new bathrooms, and new paint in all the rooms—is that so much to ask for?”
“Well, when you say it like that… I guess the price kind of makes sense, doesn’t it?”
“I guess so, but it doesn’t mean I’m happy about it.”
Being realistic about the price is very important. All too often, people walk into a meeting expecting something to cost a few thousand dollars and end up surprised by the total cost after they have picked out all of the bells and whistles. A home transformation is very exciting, but it does come at a high price point, so you will want to be realistic about how you intend to pay for it.
Popular Ways to Pay
In today’s world, there are a million different ways to finance just about anything. Even shopping online for soda can come with financing opportunities, and while this is wonderful for helping people to invest in the things that they want, it can get a little confusing. For this reason, we want to share what we consider to be the top ways to pay for your home renovation.
Pay for it in Cash
At KHB Construction, we have a saying: cash is king.
“What would you say is the best way to pay for our renovations?”
“That’s an easy one. Cash is the best way to pay for a renovation, hands down.”
When you’re investing in a renovation, paying in cash is without a doubt the best way to go—and it makes your general contractors very happy as well. When we see someone who is ready to pay for a home transformation in cash, we know that they have really thought through the investment, and that is something that we love to see.
“We started saving for our home renovation a few years ago—does this budget work for what we want?”
“We’ll need to explore what you are looking for, but as long as you’re paying in cash, we can go straight from mapping it all out to fitting you in our earliest available slot!”
The average person doesn’t just fall into $100,000—though it is possible. When someone comes in ready to pay for their home transformation in cash, it tells us that they have really thought through the decision and actively saved up for it. We love this because it means that you have personally considered what you want and how much it should cost.
Paying in cash is the best way to pay for your home renovation because it means that there won’t be any additional fees or expenses. If you know your exact budget and have put in the work to set it aside, we can help you to perfectly stay within budget—and you never have to worry about paying interest on your investment. It’s the simplest way to pay for a renovation, and we highly encourage you to take this route.
We understand that you might prefer to pay for your home transformation over time, especially if you’re choosing some of our more expensive materials and offerings. It wouldn’t be realistic to expect everyone to save up the money in advance, and we believe that the cash-out refinance option is definitely one of the best options available.
“We were told that we can refinance against our equity—what does that mean?”
“It basically means that you will just stick to your mortgage, but we’re adding a little extra back on the end of it.”
The most important thing to understand about using the cash-out refinance method is the fact that it is not a secondary loan. When you refinance to cover the expenses, you’re actually taking out of the equity in your home to cover it. This means that rather than adding an additional secondary loan, you are actually tacking on the new amount to the back of your existing loan. You will continue to make your monthly payments on that loan in the way that you have agreed upon with your lender.
“So, we don’t have to pull out a second loan?”
“Nope, this option is quick, easy, and allows you to work with your lender to just sort out your mortgage with one simple payment—just like always.”
The real benefit of this kind of loan is the fact that it makes it possible for you to have a very safe loan option. Since it isn’t a secondary loan, it is easier to manage and can be handled fairly quickly. People really appreciate the simplicity of this approach, and it can feel like a less significant investment.
Right now, this is one of the most popular ways to finance a home renovation. Every day, more people are coming in with this strategy to invest in their home transformations, and the responses have been generally positive for this approach. At this point, in 2022, the rates are looking great, making it much easier for people to comfortably choose this option.
Home Equity Line of Credit
A home equity line of credit is easy to confuse with a cash-out refinance because both involve the equity of your home. In this case, however, you are taking out a secondary loan. This means that you will receive an entire second loan to manage—and this is subject to approval.
“Our home’s equity has never been higher. Maybe a line of credit is a good idea?”
“Let’s talk with the bank. We might be able to get approved for a really significant transformation—like, marble countertops significant.”
Using this approach is very popular during times when equity is high, like right now. The value of homes is increasing, allowing more people to comfortably take out loans against the equity in their homes. During times when equity is low, this really won’t be a good approach to finance your home transformation.
“What if we wait and our equity drops?”
“This will no longer be a good option.”
This loan is entirely separate from your mortgage and will need to be handled independently. However, it does tie into your equity because it is leveraged against your home. This can help you to gain approval, and it is also just a good way to obtain the money to invest in your dream home transformation.
A Personal or Construction Loan
Personal and construction loans are good options to have as a final backup, but they are not considered to be one of the best ways to finance a home renovation. Each of these types of loans will stand completely separate from your mortgage, and they must be obtained through the use of a third party.
Personal loans are the faster option of the two. They allow you to apply quickly—and approval can be almost immediate in the right circumstances. We consider these to be one of the “quick cash” methods—because that is what personal loans are. They will give you a personal loan to meet your needs, and then you can pay us directly with the cash that you receive. These loans come in all shapes and sizes, and the rates can vary from one lending company to the next.
“Aren’t personal loans just a standalone loan?”
“They sure are. Basically, they allow you to just receive cash directly from your lender, and then you use that to pay us.”
Construction loans are more complicated than a standard personal loan. These loans are often harder to get approved for and can come with quite a few hoops to jump through. Once again, they are a type of secondary loan, but they’re a little more specific. These loans are most commonly used in the event that your home faces some kind of disaster that insurance won’t cover.
“Our insurance doesn’t completely cover the flood damage, and we still have more to fix.”
“Unfortunately, that does happen. A construction loan is probably your best bet.”
The sad truth is that when disaster strikes, insurance companies don’t always have your back. More often than not, when faced with significant damage, homeowners can find themselves grappling to squeeze money out of their insurance companies. Realistically, they do not always offer the amount of money that you will need to remodel or fix up your home. Construction loans provide a valuable backup option. Fire damage, water damage, or any other kind of restoration can be covered by these loans.
When in Doubt, Pay in Cash
When we help you with a home transformation, we make the same amount of money regardless of how you pay. We have no personal stake in the way that you fund your home renovations, but we do have to point out the obvious—cash is king.
“I’ve been looking at the interest rates for our other options, and it really does seem like saving up for our renovation is going to save us a lot of money in the long run.”
“I know. I don’t want to wait for our renovation, but it does seem like a much smarter idea, especially when you look at the numbers.”
“Don’t worry, you two. We’ll be here when you are ready to get started.”
Paying for your home renovation in cash is without a doubt the smartest way to finance your home transformation. It might mean waiting before you invest in your big remodel, but it also means that you can spend a much smaller amount of money in the long run. Home renovations are expensive, but they get even more expensive when you choose a financing option. To avoid the added expenses and hassle, start saving early and try to be patient.
Home transformations can take your home and turn it into a treasured space that you will love. They make standard homes into forever homes, and we love our work for that reason. Before you start deciding on what countertops you want or what color you want your walls to be, take the time to sit down and strongly consider your financial options.
Taking the time to save up for a home renovation can give you something to look forward to—and it means that you never spend a penny more than you have to. Of course, we are happy to help make your dream home possible no matter what method you choose!