When Should You get a Loan for your Remodeling Project?

Borrowing money for one of your latest home improvement projects is a very personal decision, but there are a few guidelines that might help you decide when it makes sense to get a loan to finance your remodel. Whether you want to add a new backyard deck or renovate a basement, you are going to need money to do it.

In this Remodeling Cost Guide, we’ll help you decide whether taking a home improvement loan is in your future. We’ll share several common ways to pay for a project, and you can determine those that apply to you, as you consider your decision.

Determine How Much You’ll Need

If you’ve got $30,000 in equity in your home and you want to add a luxury master bathroom while giving the kitchen a complete makeover, you’re not going to get the project done on that amount of equity. The average kitchen remodel costs $35K to $45K. Develop a realistic idea of how much the pieces of the project will cost.

If you’re not going to be able to borrow enough to significantly upgrade your home, then it’s probably not the time to pursue the project. It doesn’t make sense to borrow money for a “lateral move” in terms of what you can do with the money. You can always get estimates for the work. Most contractors provide them for free. Consider getting at least 2, and 3 is better.

Do You Have the Cash?

If you’ve got the cash on hand for the upgrades you want to make, then getting a home improvement loan doesn’t make much sense. Going into debt unnecessarily is discouraged by all sane financial counselors, and if you can get away with low-cost home improvements, it may make more sense! You might be making higher interest on the money you’ve got in mutual funds or long-term CDs than you would pay in interest on a loan, but you’re incurring risk. If something happens and you aren’t able to pay the debt, the damage it can do to your credit and overall financial picture can be devastating.

Consider All Your Payment Options

You might qualify for more than one of these options. A cash-out refinance is when you refinance your mortgage for more than you owe, with the extra loaned to you in cash that you can use for the remodeling project. A home equity loan doesn’t affect your original mortgage, but is a second loan that provides you with cash. Personal loans allow qualified individuals to borrow up to $15,000 without security.

Talk to your current lender or bank about these options to determine which one, if any, will allow you to complete your project without putting your debt load beyond what you can afford or are comfortable with.

Finally, Can you comfortably afford the payments on the loan? Would you rather not have the burden that debt can be? Would you only be able to afford replacing your B-grade kitchen (or bathroom, master suite, living room, etc.)with another B-grade kitchen, or would the new kitchen be a significant upgrade? These are the types of questions to consider. Think them through, do the math, listen to your heart, and you’ll know whether or not getting a home improvement loan is the right choice for you.

When Should You get a Loan for your Remodeling Project?  Well only you can decide that

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