By Lance McCarthy
The real test of a project is this simple question: “How are we going to pay for this?”
That question has killed many a beautiful dream. But it doesn’t have to. Here are some of the best options for paying for that project.
I think you know how this works.
- Usually only an option up to $30,000
- And of course there’s that pesky interest rate. It can go up over time, so watch out. Look for a zero percent promotion.
- No paperwork besides the credit card application. Results are virtually instantaneous
- It is also flexible. You can pay for things when you want.
Many contractors offer financing for their projects (through a third party usually). We do this.
- Ours is limited to projects up to $55,000
- Interest rate can be tricky on these, because it could be that it looks low but the contractor is factoring the real rate into the project price. Just ask questions.
- Easy to work with, and quick to approve. The plan we use takes a few questions on a tablet and then usually instant approval.
Home Equity Lines of Credit (“HELOC” if you want to sound smart)
These are usually tied to your home mortgage, but are more flexible.
- Rates are higher than traditional mortgage, but lower than most credit cards
- This usually works for projects up to $50,000 or so, depending on your bank
- Takes more paperwork than the above options, but less than a full home loan
- Works great for work that you want to phase because you get approved for an amount and then can pay down on it or charge up on it as you like, and you only pay interest on the current balance
Home Equity Loan (Second mortgage)
- These are the HELOC’s stuffy big brother. They usually require a bit more work and closing costs (probably an appraisal too).
- It is less flexible than the other options. You get approved for a certain amount, and that amount is what the loan is for.
- The rate is lower than the other options above, especially right now
- This can give you more money than the options above, up to 85% of the value of the home with your first mortgage.
- A version of this through HUD is called 203k. This can be a great program if you qualify. It goes through your bank, but is basically subsidized by HUD, and allows great terms for up to 95% of the value of the home up to $150,000
Construction Loan or Refinanced Mortgage
- This is the granddaddy of loans. It requires the most paperwork and closing costs. It is basically a mortgage, and you know what that takes.
- Slow as well. Plan for 2-4 weeks to close.
- Rates are the most favorable of all the options, especially right now
- This allows the highest possible total loan value (usually 200k and up), and is usually appraised based on what the value of your house will be after the project is done.
I hope that helps. If I can answer any other questions drop me an email. We deal with these questions all the time. And if you have a great banker, talk to them. If you don’t, I can give you a couple names.
Do you have more questions, or want my list of favorite designers? Just email me at email@example.com