Wise Ways to Incorporate Basements Financing Into Your Home Budget
Remodeling a basement may be an expensive venture, but with proper financing it can add substantial value and make life in your house more comfortable and enjoyable. Consider financing a basement remodel to get a bigger home without moving. Owning a larger living space without paying more in mortgage payments per month is valuable for many homeowners.
Framing alone for an unfinished basement remodel can easily exceed several thousand dollars; hiring a general contractor and other specialists (plumbers and electricians) can add another couple of thousands. To avoid going over budget when renovating a basement, here are three financing solutions for basement makeover projects:
1. Use Your Credit Cards
Basement renovation projects are becoming increasingly popular with homeowners. While kitchen and bathroom remodeling remain among the top projects for home improvement projects, finishing your basement may also prove an invaluable way to add value and add longevity to your property.
One way of funding a basement renovation is with credit cards. Credit cards offer flexible financing solutions for home improvements as they can be used as needed and paid off over time – however their interest rates can quickly consume your budget if you take advantage of 0% introductory rate periods offered by many card providers.
Personal loans may also be an attractive solution, providing liquid assets aren’t enough to pay upfront for a project. Unfortunately, however, their interest rates tend to be more expensive than home equity financing options, making this method less desirable among certain homeowners.
Some home improvement contractors and professionals offer financing solutions for basement remodeling projects themselves, either as a line of credit or loan. Before agreeing to such financing arrangements, be sure to carefully read over their terms and conditions as some lenders require that you own your home outright or pay more than 750K in mortgage debt.
2. Take Out a Personal Loan
Personal loans may be the perfect solution if you don’t have enough liquid cash or equity in your home to fund the cost of remodeling your basement. With personal loans, you can borrow an initial lump sum amount before paying it back over 12-84 months with no lien placed against your property – perfect if losing it was ever an option! However, keep in mind that contractors and home improvement professionals often charge an extra 5% surcharge when using plastic for payment – so this type of financing could prove more expensive than other options.
Remodeling your basement into a usable space is an effective way to both increase its livability and boost its value, according to Zillow. Remodeling it may return up to 75% of its costs upon selling; however, many homeowners struggle with funding such an expensive renovation upfront.
An effective strategy for meeting this challenge is saving over a longer period in a high-yield savings account, or by applying for either an FHA 203k or Fannie Mae HomeStyle Renovation mortgage loan; both allow homeowners to combine purchase and renovation costs into a single loan; however, both may pose certain caveats that make them inappropriate choices for most.
3. Apply for a Home Equity Loan
Home equity loans convert the equity in your house to cash that can be used for renovation costs. They’re an excellent alternative to personal loans or credit cards when remodeling basements as they offer significantly more funding.
Homeowners should be mindful that choosing this option carries inherent risks. Before applying for a home equity loan or line of credit, they should compare rates, fees, and repayment terms against those available through personal loans or credit cards to make an informed decision.
Note that home improvement loans and lines of credit require extensive credit checks and home appraisals that could potentially delay project start up time, as well as down payments of at least 20% with early termination fees imposed for both options.
Home improvement loans can be an effective way of financing basement renovations, though not every homeowner finds them suitable. Some choose personal loans or credit cards instead while others turn to contractor financing or home equity lines of credit.
Some contractors and companies provide financing, which can be an ideal option for homeowners with the time and energy to shop around for the best rate. When reviewing contractor-provided loans against options like personal loans and credit card providers as well as home equity solutions like HELOCs or 203(k) loans, costs and terms should be carefully considered before selecting one as your solution.
4. Consider a HELOC
An upgraded basement can make an amazing difference for any home. From creating extra living space for growing families or simply adding guest quarters, remodeling this area of your house will increase its livability while simultaneously increasing its value.
Home Equity Line of Credit or loan (HELOC/LEAP) loans can provide funding options to assist with basement renovation. By using your home as collateral for these loans, HELOC/LEAPs allow you to convert equity into cash that can be repaid over 15 years – however if payments fail you could risk losing it altogether.
Alternately, personal loans could also provide the flexibility you need when funding a basement remodel. While they often feature fixed monthly payments with flexible repayment terms, it is essential to carefully review all fees associated with these options to make sure you won’t end up paying more down the line.
No matter the financing option you select, it is essential that you can easily manage your debt load and stay within your budget. To get your basement remodel underway and on track without going over budget, RenoFi can assist in finding a loan program designed to fit your specific needs.
To further ensure you stay in control of your project and budget, consider perusing an internet search engine to look for guidance related to the process; trying simply typing in keywords such as ‘Basement Renovations’ or ‘ Penguin Basements’. This could provide you with valuable insight and tips that can help you along the way.