Home renovation projects can be exciting. Homeowners have the opportunity to transform their home into the space they’ve always dreamed of. Renovation possibilities are endless. From transforming a dated kitchen to creating a garden room to renovating an entire floor of a house, the right type of financing can assist with bringing homeowners’ ideas to fruition without completely depleting their personal savings accounts. Unfortunately, it is also possible for homeowners to create errors during the process of financing their renovation projects which can cause their dreams to become nightmares.
Here we’ll examine the top mistakes that homeowners make while seeking financing for their home improvement projects, and how to avoid making them.
Overlooking Total Project Costs
Many homeowners tend to concentrate solely on the readily apparent expenditures associated with a home improvement project. The materials, labor, and necessary permits needed to complete the job are examples of the obvious line items. But they overlook some of the less conspicuous expenditures, such as the cost of a skip, inspection fees, temporary accommodations, and relocation of utilities. And then there is VAT (Value Added Tax).
Unless a homeowner takes the time to account for all of the costs associated with a home improvement project, they may find themselves forced to cut off the project prematurely or seek additional funding. Before committing to a financing program, take the time to determine the cost of each and every item related to your home improvement project. Consult with your contractor. Find out from other homeowners who have completed a similar project what types of costs they encountered. Determine whether you should set aside 10-15% of your total project budget as a contingency fund. The contingency fund should be used for those items you did not originally plan for, not for frivolous upgrades.
Choosing the Wrong Type of Financing
Not all loans are created equal. Some people rush into high-interest credit cards or unsecured loans because they’re fast and easy. Others refinance their homes unnecessarily, adding decades to their mortgage for a kitchen refit.
A secured home improvement loan from Squared Money can be a smarter option. If you’re a homeowner, securing your loan against your property could give you access to better interest rates and larger amounts. It’s not for everyone, but in many cases, it offers the balance of flexibility and control that ambitious renovations require.
Neglecting to Obtain Multiple Quotes
Why purchase the first car you see? Why settle for the first loan offer? Many homeowners do exactly this. After discovering a potential lender, they merely review the interest rate quoted and apply for the loan.
While lenders vary greatly, not all specialize in providing home improvement financing. Some lenders charge significant penalties for early loan payoff, while others provide flexible early repayment terms.
Take the time to shop around for multiple quotes. Be certain to read the fine print. Don’t hesitate to ask the lender about the total amount of money you will pay over the life of the loan, as well as the number of payments per month.
Assuming Excessive Growth in the Market Value of Their Home
Many homeowners rely upon the assumption that their home’s market value will increase substantially after the completion of their home improvement project. However, the housing market is subject to fluctuations. Market trends change.
Reliance on the anticipated growth in the market value of your home to repay the borrowed amount is a risk. Complete your home renovation for your own enjoyment first. While the increased market value of your home may ultimately prove to be beneficial to you if you decide to sell your home, it should not serve as the primary justification for taking on debt to complete a home improvement project.
Obtaining financing for home improvement projects does not need to be stressful. In fact, obtaining the proper financing for home improvement projects can be a strategic means of improving the quality of your living environment without completely exhausting your savings. However, it is prudent to approach the matter thoughtfully. By avoiding common pitfalls, you can ensure that your renovation project proceeds smoothly and without long-term financial regrets.
