how to finance a remodel

Thinking of financing a bathroom remodel? Try these tips to secure a loan.

You know exactly what you want for your new bathroom and you’re ready to make it a reality. There is just one small little detail: the money.

Often times you have to renovate your bathroom without much notice. You may have to quickly sell your home because a new job or baby is forcing a hasty relocation. Maybe a leaky pipe or ceiling ruined your bathroom and now it’s time to start over.

In any case, you need the renovations and need help with the financing ASAP.

Here’s what to do.

Talk to Your Builder or Contractor

Ask the people actually working on the project for you if they offer financing or payment plan options. Each contractor has their own payment schedule, and if a project takes a little time, it may give you the ability to spread out payments and not have to finance at all. However, most (if not all contractors) don’t offer financing themselves, leaving you to rely on other sources to make your remodel a reality.

Talk to Your Bank

It’s also a good idea to speak to the bank, as you already have an existing relationship with them.

You’re likely going to be faced with one of three options:

Personal Loan

If you have strong credit, this is likely your best option. You’re taking out a loan with the bank, based on your creditworthiness, instead of putting up anything as collateral (unlike a home equity loan, which we’ll explore below).

Your repayment terms will likely fall into the 10-year range, depending on how much you borrow.

Your credit score and history will determine your interest rate, but you can expect something around 10%.

Line of Credit

Your eligibility is determined by the bank the same way it would be for a personal loan. The difference is you’re getting a flexible line of credit, instead of a lump sum. This can be particularly handy for home improvement, just in case things run slightly over budget.

Home Equity Loan

These are great if your home has increased in value since you purchased it. Basically, your home acts as collateral for the loan, as your bank will approve to borrow up to a certain amount of your home. However, there are risks anytime you use your home as collateral.

Your loan term may often be stretched over a longer period than a personal loan, as long as 15-30 years.

Cash-Out Refinance

This is another very popular options. Basically, a cash-out refinance replaces your current mortgage with another loan that pays off your current mortgage balance.

At the same time you use the available equity in your home to provide additional funds for your renovation.

Credit Cards

Your bank may also offer you their branded credit card. If you want to accumulate a huge amount of points or miles, putting your bathroom renovation on your credit card is a great way to get a new room and possibly a free trip on the side.

If you’re thinking about putting it on your card when you know that you have a big bonus or promotion at work, that’s a solid plan. If you’re hoping to chip away at the balance for a few months, you’re better off looking into any of the rates above.

Other Lenders

If you’re currently rebuilding your credit, you can also apply for a loan or a line of credit from a private lender.

These may include:

  • Online lenders
  • Marketplace lenders
  • Peer-to-peer (P2P) lending sites

The trade-off with these options is you will be paying a higher interest rate and your monthly payments will be higher. Every loan comes with its own risks, and if you’re considering more dramatic options with very high rates you should consider the terms very carefully.