When deciding how to pay for your renovation, you have two options: finance the project or pay with cash. This article lists five factors to consider: project size, other expected expenses, your credit score, project upgrade potential, and the economy.
As a general rule, consider financing for renovations that cost above $4,000.
Consider the amount of cash in your bank account. If your renovation would cost a moderate to large share of your savings or more, then you should seriously consider financing the project. On the other hand, you probably should pay cash for a paint job.
Financing can spread payments over time, avoiding a large one-time hit to your savings.
Make sure you understand how much the renovation will cost. Many homeowners underestimate costs, as most of us do not renovate often. A project that may appear to be better suited for cash may actually be large enough for financing.
Other Expected Expenses
From medical bills to college tuition, your bank account can face many demands. Financing a renovation through low monthly payments helps you spread out the hit to your bank account, saving money for other expenses. Financing the project can also give you a buffer for unexpected expenses that arise during the project.
Your Credit Score
Homeowners with good to excellent credit scores can lock in low monthly payments for their renovations. Improving your credit score helps you qualify for lower rates.
You don’t have to finance your entire renovation. Instead, complement your savings to help you upgrade your project or afford a better contractor.
Now is a unique time to consider financing because interest rates are historically low. With rates expected to rise, you can lock in financing through a fixed-rate loan.