With the last breath of fall in the air, you may finally be looking into a home improvement project, particularly an upgrade to windows and doors or other exterior items to improve the energy efficiency of your home before winter truly hits. Great! You’re ready, at last, but are your finances?
Take a look at these numbers: 1) Whole house window replacement will start at around $5,000 and could go upwards to $20,000 or more depending on the number of windows and whether you select vinyl or wood, what upgrades, etc. 2) Exterior door replacement, including storm doors, again, whole house, will probably be at least $3,000. 3) A new roof will be at least $10,000, and the list goes on. Needless to say, renovations are expensive, and most families don’t have that kind of cash on hand, unless they’ve been planning and saving for a project for a long time. So, how are you going to pay for these renovations?
Your first option would be to try to get a home equity loan or home improvement loan from your personal bank. In today’s economy, that could be tricky, in part because equity levels have dropped substantially with the drop in housing prices, so qualifying may be a challenge. In addition, banks are becoming tougher and tougher about issuing credit for anyone, having been burned in the past by being too easy. If you can qualify, however, by all means, this is a wonderful option. Interest rates will be lower than other alternatives, because you have an existing relationship with your bank. But you still need to make sure you have preapproval before you begin the ordering process for your project – the last thing you need is a glitch in finances in the middle of such a substantial project.
If you don’t have enough equity in your home, or don’t qualify for a traditional bank loan for other reasons, another alternative is “contractor” financing. Let’s be clear – in most cases, the contractor is not offering to finance the project themselves. Very few companies are in a financial position themselves to carry this kind of debt. Instead, many remodeling companies have relationships with finance companies that will pay the contractor for the project and then collect from the homeowner over time. This arrangement is generally somewhat easier to qualify for than traditional financing, but you will still need to make sure everything is in place before kicking off your project.
Finally, and unless you know that you have a windfall coming soon, I strongly discourage this option, you might have a strong enough line of credit with your credit card company to pay for your project. Again, remember that interest rates charged by credit card companies make this a last resort in financing your project, unless you are sure that you will have the ability to pay off the charge very quickly (one to two months). Otherwise, your final project cost could double, with interest charges over the time it takes to pay off a $5,000 to $20,000 debt.
So, here’s the bottom line – make sure you have your financial arrangements intact before you place the order for your home improvement project. The last thing you need is a nasty surprise when you are looking forward to something good!
Rae the Renovator