Many things about home renovation are flexible. You can always change wall colors or nudge a wall another six inches. But one thing is certain: you need money. Not a single nail gets hammered into place without money.
Cash and Liquid Assets
The most readily available money you can have: savings, checking, CD's and savings bonds near maturity.
Pros
- No interest, no fees, no charges.
- You are not dependent on anyone else.
Cons
- Depletes any reserves you may have.
- Most people don't have a lot of cash available.
Bottom Line: Cash and liquid assets are the best way to fund your projects--but only if you've got plenty to spare.
Credit Card
A credit card that you pay off at the end of each month. Or a zero-interest that you don't have to pay off for six months or a year. Some homeowners pay off one zero-interest card with yet another zero-interest card, thereby creating a permanent, but risky, no-interest loan.
Pros
- Money available quickly.
- Lucrative points or rewards possible on some cards by charging large home-related purchases.
Cons
- Danger of high interest and fees.
- Give you false sense of security that you have more money than you actually have.
Bottom Line: A tricky way to finance home renovations, and one that requires attention and maintenance.
Home Equity Loan
A
home equity loan is the classic way to finance home renovations. Take out a loan against the
equity in your own house.
- Large amounts of money may be available for large projects like additions.
- Lower interest rates than personal loans and credit cards.
Cons
- If you keep depleting your equity, you reduce the sum you will receive when you eventually sell the house.
- The large amounts available with this loan encourage spending on things unrelated to the renovation.
Bottom Line: Target this loan only for specific projects.
Sweat Equity
Got any willing friends and family? For the price of a six-pack and a takeout pizza, they may help you put some
sweat equity into your renovation project.
- Labor is completely free.
- Satisfying to have 100% control of your project.
Cons
- Only the labor is free; you still have to pay for materials.
- If a learning curve is involved, still may be cheaper and faster to hire workers.
Bottom Line: Some sweat equity is inevitable, and even can be fun, but don't stretch it if you're not sure of your abilities.