[ad_1] If you own a home in need of some renovations or if you are thinking about purchasing a fixer upper, here are four ways to pay for a home remodel that may work for you. As long-time DoughRoller readers may know, my husband and I went about our journey into homeownership in a slightly off-beat way. Long story short: we own a 2,400 square foot duplex in Indianapolis and have no mortgage. But we do have a significant amount of work left to do, nearly three years into the process. Owning a fixer-upper has been a fun journey for our family, but it hasn’t always been easy. Besides not always having running water and never having central A/C, we’ve also had to figure out how to finance all the repairs our home needs. I’m happy to say that we’re now well on our way. Soon, we’ll be closing on a mortgage that will allow us to pay contractors to finish the rest of the work on our home. Going through this process has taught me quite a bit about options for financing a fixer-upper, too. And there are plenty of excellent options out there. Unfortunately, many home buyers and homeowners just aren’t aware of these options. If you’d like to purchase a fixer-upper or renovate your current home, here are four great options to consider: 1. Cash or credit card I know, cash and credit cards seem like opposites. But for our intents and purposes, you’d use cash or a credit card in similar situations. These are financing options only if the renovations you need to make are low-dollar projects. You can do many value-adding home renovation projects for a relatively small amount of money. For instance, painting is a cheap way to upgrade the look of your home. Or you could lay a new floor in a tiny bathroom to modernize it. These upgrades could cost just a couple thousand dollars. In this situation, it probably doesn’t make sense to go through the lengthy second mortgage or refinancing process. Instead, you can either save up cash ahead of time or use a 0% introductory APR credit card to finance your renovation up front. If you do choose to use a credit card, though, just be absolutely certain that you’ll pay it off before you start having to pay interest. Cash and credit card aren’t really the best financing options for your renovation, especially if you’re planning several thousand dollars worth of renovations on your home. If this is the case, look to the following three options for a better deal. 2. A second mortgage According to mortgage lender James Dix, a home equity line of credit (HELOC) or home equity loan can both be decent options for financing minor home renovations. A HELOC is a revolving loan on your home, meaning it works like a credit card where you can spend up the line of credit and pay it down multiple times over the life of the loan. Home equity loans, on the other hand, are fixed-rate, fixed-term loans. Both of these options are technically second mortgages. If you owe $100,000 on your home, but it’s worth $150,000, you can take out a HELOC or home equity loan for up to 90% (or sometimes 95%) of the equity in your home — so in this example, $35,000. These loans come with a lien against your home so, if you default, the bank will be able to foreclose on your home just as with a regular mortgage. Use our free mortgage calculator to estimate your monthly mortgage payment That can sound a little scary, but using your home as collateral gives you access to lower interest rates. Plus, interest you pay on a second mortgage usually qualifies for the mortgage interest tax deduction, just like interest paid on a regular 15- or 30-year mortgage. A home equity loan can sound safer, but Dix recommends homeowners look into a HELOC first. This is mainly because interest rates on HELOCs are so low right now. Home equity loans tend to have a higher interest rate. On the flip side, HELOCs typically have variable interest rates. “The interest rates right now are favorable,” said Dix, “but the interest rate is usually tied to prime. And while prime is low right now, we have every reason to believe that prime is going to go up in the coming years.” His bottom-line advice for consumers? Don’t take out a second mortgage, especially a variable-rate option, unless you’re able to pay it off within the next three years. Resource: Get a quote on a HELOC from LendingTree in minutes When is it a good option? If you have some equity built up in your home and can pay off the cost of your renovations within a few years, a HELOC might be a good option for you. Since HELOCs usually have very little closing costs, this is also a good option if you know you’ll be in the market to sell soon. You won’t have to worry as much about breaking even on thousands of dollars of closing costs. If you’d prefer the stability and longer term of a home equity loan over a HELOC, you might consider option #3, instead: it can also help you tap into your home’s current equity, but it’ll likely involve a lower interest rate. 3. Cash-out refinancing With a cash-out refinance, you’ll refinance your home and take cash out at closing. As with a second mortgage, this option will only work if you currently have equity in your home. Terms vary, but you can typically borrow up to between 80% and 90% of the current value of your home. With a cash-out refinance, said Dix, “[you’re] going to get a fixed rate, fixed term. You’re going to get low payments because you can go all the way out to 30 years on that.” This can free up cash for you to devote to other things, including investments or
