How to Finance a Large Home Remodel

How to Finance a Large Home Remodel

Every homeowner has some remodeling for their home in mind. Of course, one of the biggest reasons homeowners are not on the phone calling the home remodeling service is because the plan gets stalled by concerns about how to finance a large home remodel. The good news is there are some surprising ways you can finance a large home remodel to make it budget-friendly. Learn how to finance a large home remodel below.

Raising Money for Large Scale Remodeling

It may be easier to raise money for a large remodel of your home. One of the best ways to finance your remodel without taking on too much debt is to sell off things you no longer need or want. Selling off cars you are not using or household items can pad your bank account nicely.

Selling items you don’t use or don’t want anymore can raise extra cash and help you declutter and prepare for the remodel. Before you call the house remodeler and get price quotes, clear your home of everything you don’t want and put it up for sale. Garage items and tools usually sell fast. You can sell old clothing, sports equipment, and furnishings; you can resell just about anything in your home.

While you will not make enough money to cover the remodel fully, you may wind up with enough money to cover at least part of the project. For example, selling off that old car for parts may cover the cost of interior painters‘ fees. There are plenty of online marketplaces where you can sell used items for free.

Another answer to financing a large home remodel without ringing up debt is to sell off the things you are going to replace in your home. For example, you met with the kitchen designer and decided to replace your kitchen cabinets. You can choose to dispose of the old kitchen cabinets, donate them, or make some money off them by selling them.

If you are trying to keep costs down, selling used appliances that you plan on replacing, cabinetry, and even countertops can raise some money. Every dollar you earn by selling things you are replacing is a dollar you do not have to pay.

Tap into Your Home’s Equity

Many homeowners find the solution to how to finance a large home remodel by using the equity in their home. If you have been in your home for five years or longer, your home value has likely gone up. Equity is the difference between how much you owe on your mortgage and how much your home is worth. Some banks will allow you to take out a credit line or a loan up to 100% of the value of your home.

A home equity line of credit can be a good option for how to finance a large home remodel because you only take what you need. A traditional home equity loan is a designated amount whether you need it all or not. For example, with a home equity line of credit, if you need to make a payment of $21,000 to the kitchen and bath remodeling company, you can write the check for that exact amount. If you take a home equity loan for $50,000, the money you don’t use will be sitting there, tempting you to spend it.

Home equity lines of credit give you more control over the amount of money you are doling out. It is more like drawing from your bank account. However, on an equity loan, the repayment terms are typically much longer than on a line of credit.

In either case, be sure to read the fine print to understand what your payment obligations are. Tapping into your home equity can be a great solution for how to finance a large home remodel if the terms are suitable.

Use Contractor Financing

Most kitchen remodeling companies offer financing options, like other remodeling companies. Taking advantage of these finance options can spread payments for the project out to make the project more affordable. Of course, like any finance option, you do want to look closely at the interest rate, the terms, and whether it will be affordable.

Unless you use one company for all the work, you may have several monthly bills to deal with. Dealing with multiple monthly payments can get overwhelming. You must be cautious when it comes to accepting financing from multiple sources. Ideally, your bathroom remodeling contractor will offer a turn-key approach to bathroom remodeling, which includes every part of the process, and offer great financing terms.

You do not want to finance through the kitchen remodeler than finance for kitchen cabinet installation and the flooring and the countertops separately. It gets daunting and expensive to keep up with all the financing. One contractor that can do it all and that offers financing options is best when it comes to how to finance a large home remodel.

Take a Loan From Yourself

If you have a retirement account like a 401K through your employer, many types of these accounts allow you to take a loan from yourself without penalty. You have to pay back the loan like any other, but the interest rate is usually very low, and you will have enough time to avoid penalties. Taking a loan from your retirement account is not an option that is always available with every type of account, but it is worth a try.

You can reach out to your human resources department or the company that holds your 401K to find out if you can take a loan from your retirement account. There is a process involved, and it can take a week or two to get your money, but it can be a low-interest method when it comes to how to finance a large home remodel.

Most financial experts recommend that you do not cash in any part of your retirement to fund a home remodel project. A large tax penalty applies when you cash in part of your retirement before you reach age requirements. That tax penalty greatly increases the cost of the home remodel.

Do Part of the Work Yourself

There are several steps in the process of home remodeling. If you can do part of the steps in the process yourself, you could make a home remodel more affordable and, therefore, easier to finance. You may think that you have zero skills when it comes to remodeling, but there are things that anyone can do to assist in the process.

A good example of what you can do without any skills is demolition work. Your old countertops, flooring, and appliances will need to be removed from your kitchen before anyone can begin the kitchen remodel. You can demolish your kitchen if you can handle a hammer and a pry bar. The beauty of doing part of the work yourself is that you can take extra care when removing, cabinets, flooring, countertops, and other fixtures so you can resell them.

Residential plumbers would love to walk into your bathroom and find that all the old fixtures are gone so they can start their part of the project with a clean slate. Investing sweat equity into the project can shave off thousands of dollars from the project, which will make paying for things a lot easier on the wallet.

Of course, if you are handy and can manage other parts of the project on your own, you could save even more money. For example, if you are good with tile work, it would be tremendous savings if you bought the materials (on sale) and installed the tiles as a DIY project. Anything you can do to lower labor costs will work to your advantage.

Costs for a home remodel fall into one of two categories; labor and materials. If you can find savings in either of these two categories, you will make your home remodeling project a lot cheaper, and it will be easier to bear the brunt of financing the project. Getting involved in the nuts and bolts of the project can be a great way to make it easier to finance your project.

Pay For Your Home Remodel In Increments

Was Rome built in a day? No, and so goes your large home remodeling project. It would be great if you and your family could stay in a hotel for a couple of months and let the contractors remodel your home. However, for most homeowners, that is not only not practical but also cost-prohibitive. Why not take your time with all the projects you want to get done for your large home remodel and spread the cost out over time?

A larger home remodel is more of a marathon than a sprint. It is best to spread the projects out, pay cash when you can, and take a slow and steady approach to your progress. It is easier to finance a bunch of smaller projects than to find the financing for one large home remodel.

Let’s say you want to remodel the kitchen, bathroom, and master bedroom. Completing the kitchen project, then moving on to the bathroom, completing that project, then moving on to the master bedroom will take you a little more time than doing it all at once, but it will be more affordable.

When you take on a large home remodel all at once, pausing the project is typically not an option. The contracts are already signed, and work has begun. It is complicated to stop the project midstream. You must live with a mess if you stop a large home remodeling midstream. There are other downsides to trying to do it all at once, besides the expense. Instead of having one room disrupted and unusable, you will have multiple spaces unusable. Remember, you don’t have to complete every leg of the project at once.

Final Financing Tip for a Large Home Remodel

One of the worst answers to how to finance a large home remodel is to use credit cards. While most homeowners wind up using credit cards, even if they start out opposed to the idea, covering at least part of their home remodels is not the best option. Credit cards typically carry some of the highest interest rates, far higher than a personal or a home equity loan. If you must use your credit cards, use them for smaller payments, like paying your local electrician to run the lines in your new kitchen. Don’t use credit cards for large type payments. The interest rate makes the home remodel much more expensive than it needs to be.

Ideally, cash is the best answer to how to finance a large home remodel. If you can save money over time, that would be great. Put a five-year plan into place and figure out how much it will cost for the remodeling work you want. Then figure out what the monthly payments will be like. Start paying yourself every month. Open a separate bank account and have the money automatically transferred into the account every month. You can pay cash for your large home remodel in a relatively short period. It can be hard to wait to do the things you want to your home, but ultimately if you can wait and save, that is the best option.

Paying cash for a home remodel can deliver other benefits like contractor discounts for paying in cash. Paying with cash also makes you far more conscientious about how you are spending the money. It can help you stay focused on your predetermined budget. A little patience and a plan can be the best answer for how to finance a large home remodel.