Home repairs can carry high costs and occur at the worst times — that’s why it’s important to be prepared for unexpected expenses. However, sometimes a big, unexpected expense takes you out at the knees, like your basement being flooded and finding out it isn’t covered by your home insurance.
In these scenarios, you’ll probably have to find a way to finance a major repair. Here are some financing options you should explore if you find yourself footing the bill for a home repair.
1. Home Improvement Loans
A home improvement loan or a home repair loan is an unsecured loan available through online lenders, credit unions, and banks. “Unsecured” means your house will not be used as collateral. The interest rate is determined by credit score and the funding will become available quickly.
A home improvement loan is a good option for a small-to-medium-sized project in the home, since the repayment time is often shorter than most standard loans. Also, since this is an unsecured loan, it may have a high interest rate. You should also take into account that unsecured loans may also have inflated late fees. If you’re looking for an unsecured loan, try to find a lender that has good interest rates, friendly repayment terms, and competitive fees.
2. Home Equity Line of Credit (HELOC)
A HELOC is another great way to finance improvements to your home. HELOCs usually have a lower interest rate than an unsecured loan because the collateral is your home’s equity. HELOCs also incorporate revolving credit so you can take out funding on an as-needed basis, which makes them a good choice for renovation projects that are ongoing. Although HELOCs are one of the best loan options for financing home repairs, a borrower has to have a good amount of equity in their home to qualify for one.
3. Home Equity Loans
An alternative to a HELOC is a home equity loan (commonly referred to as a second mortgage). Similar to a home improvement loan, it is loaned as a lump sum that you will pay off over several years through monthly payments. A home equity loan has a fixed interest rate, which means your payment amounts will not fluctuate for the duration of the loan.
4. Mortgage Refinancing
When you refinance your mortgage, your old mortgage is replaced by a new one with a different interest rate. If the new loan is larger than the old one, the extra money can be used for home renovations.
If refinancing is an option for you, make sure you know the benefits and drawbacks. You will need to pay for items like origination fees, appraisal, taxes, and other closing costs. Also, unless the mortgage is refinanced under a shorter term, it will mean your loan is going to take longer to pay off.
5. Credit Cards
For minor updates to your property, such as adding a new bathroom vanity or putting in a new closet system, a credit card might be a good idea. One of the advantages of this option is that many cards have no interest for the first few months. This means you can make improvements without paying interest. Credit cards also often have rewards systems so you can get cash back for making home improvements.