Home Improvement Finance Strategies: Products and programs that turn dreams into reality
All successful home improvement endeavors begin with careful planning, no matter what the scale of construction or budget. Though it's tempting to rush ahead with your hammer, you and your wallet have a better chance of happiness with the finished product if you've invested plenty of brain and calculator work before the first nail is purchased. It all begins with a careful, honest assessment of what you want or need to accomplish, and whether or not it will increase the value of your most important investment. Next, there's cost research and construction of the project budget, followed by the selection of financing best suited to the project and your overall financial picture.
There are a lot of financing options out there, appropriate for everything from purchase of a new appliance to a complete kitchen redo. Here's a look at the most common categories, in ascending order of project cost and complexity.
STORE CREDIT CARD -- Available at your favorite home improvement retailer, a store credit card is a convenient way to pay for smaller-ticket items such as appliances and incidental materials needs. Repayment timing is flexible, and retailers frequently offer card promotions with delayed payment schedules (anywhere from six to twelve months) and low or no interest on balances for a designated period of time. Just like any other credit card, the credit limit will be dependent on applicant credit history.
STORE FINANCE PROGRAMS -- Many larger home improvement retailers also offer finance programs meant to cover materials and labor provided by their stores for major projects such as whole-room remodels. Though the details vary from store to store, the plan is to allow you to pay for purchases over time via an unsecured loan orchestrated by the store itself. Generally, $1,000 is the minimum initial purchase amount, and there are usually terms that allow for no payments or interest for the first six months, after which a set payment schedule and interest accruals set in. Store finance programs are an option for homeowners who need to get significant work done but haven't been in their homes long enough to acquire the equity needed to qualify for a bank-issued loan.
HOME EQUITY LINE OF CREDIT -- Equity is the difference between your home's fair market value and the mortgage balance you have yet to pay, and if you've got enough stocked up, you can parlay it into one of the equity-based products offered by consumer banking institutions. A home equity line of credit provides you with access to funds in installments as needed, with the total amount of money available to you being based on your home equity total. Repayment is flexible (some people may choose to pay only the interest for a certain period of time), with interest rate variable and the amount of interest paid being up to 100 percent tax deductible.
HOME EQUITY LOAN -- Also based on the equity you have in your home, this option is the way to go if you prefer a fixed interest rate and fixed monthly payments. You receive your funds in one big lump sum payout, and repay the loan over several years, preceded by loan fees and closing costs. Because of that long-term, big-ticket factor, a home equity loan is suited to home improvement purchases that will have a longtime impact, such as a new roof.
HOME IMPROVEMENT OR PERSONAL LOANS -- Banks offer these loans for home improvers who don't yet have enough equity for the two preceding options. Another way to cover big, one-time investments, these offer fixed interest rates, fixed monthly payments, and repayment scheduled over a number of years.
Regardless of your source of financing, always be mindful of the return you may get on your home improvement investment. Some home improvements, like kitchen and bath upgrades, deliver near a 100 percent return on investment when it comes time to sell. Others, like decorating projects, are very personal and hence may not pay when it comes time to sell. That doesn't mean you shouldn't tackle those too, just remember that those should be for your personal enjoyment!
Note: Tom Kraeutler is the Home Improvement Editor for AOL and host of The Money Pit, a nationally syndicated home improvement radio program. To find a local radio station, download the show's podcast or sign-up for Tom's free weekly e-newsletter, visit the program's Web site.