If your home is in need of some repair, there are several financing options that you may want to consider. Depending on the size and scope of the repair project and its potential costs, some financing options may be better than others. Additionally, some of these financing options may be better suited for you based on your current financial situation. Do you already have a second mortgage? Then a home equity loan or home equity line of credit may not be possible. Are the repairs going to cost $50,000, $75,000, or even $100,000+? Then saving up and paying for the repairs with cash or using a credit card may not be an option. Let us go through some of the most common financing options for home repairs to help you determine which option may be the best for your financial situation and current circumstances.

Cash: If you are aware of what kind of repairs your home will need in the near future, you could start saving as much as you can each month and putting the money into a special savings account devoted to the home repair projects you are looking to complete. If you are patient enough, you could only complete certain projects or certain portions of the project over time and pay cash along the way. If you already have savings, you can put some or all of that toward a down payment on a contractor and save the remaining funds during construction to be paid once the project is complete. Cash is the most financially intelligent way to pay for anything, whether it is a home repair project or a new vehicle. The reason is, when you pay cash for a home repair project, you are not required to pay interest. Depending on the amount needed to complete the repairs, you could end up saving thousands of dollars that would have been required to pay in interest over the life of a loan.

Credit cards: Credit cards are always an option for smaller home repair projects that do not cost more than a few thousand dollars. They can be a simple and quick way to pay a contractor, plumber, electrician, or pay for any materials that you may need. Ideally, if you use a credit card, you should be able to pay off the entire balance within a few short months to avoid paying an incredible amount of interest. If you know you may not be able to pay off the total amount in a few months, then you may want to consider a different form of financing with lower interest rates. If you only make the minimum payments on your credit card, you could be paying off your home repair project for years while accumulating a massive amount of interest in the meantime.

Personal line of credit: A personal line of credit acts similar to a credit card, however, the interest rates are often lower. Essentially, a lender will approve you for a certain amount, like $10,000, for example, you can borrow as much or as little of the 10k as you would like while making monthly payments as you go. The larger your monthly payments, the more your line of credit is replenished for future withdrawals. The funds from a personal line of credit often can be instantly transferred to your bank account from the lender. It is up to your bank how quickly they make the funds available. Otherwise, some lenders could even issue you a credit card that has direct access to your personal line of credit. Personal lines of credit can have interest rates between 10% and 20%, where some credit cards may charge an interest rate between 26% and 36%..

Cash-out refinance: If you do not think you can afford an additional monthly loan payment in addition to your current mortgage, student loans, car loan, credit cards, utilities, etc. then a cash-out refinance may be a great option to keep paying only one mortgage payment. A cash-out refinance may bring additional benefits like a lower interest rate and a lower monthly payment. With a cash-out refinance, essentially, you are replacing your current mortgage with a new mortgage that is for a larger amount. When the new mortgage pays off the original loan, there will be money left over that could be used to complete any home repairs that you need. One of the only downsides to refinancing your mortgage with a cash-out refinance is that you may have to pay for an appraisal, origination fees, taxes, and other closing costs. However, if it gets you the money you need to make some major home repairs and it lowers your monthly mortgage payments at the same time, then it may be worth it.

Government loan programs: There are several government loan programs that offer financing to make home repairs and renovations. There are home repair loans available through Fannie Mae, the FHA, HUD, the USDA, and the VA. Government loan programs are great options for individuals who may lack the credit to obtain more traditional and private methods of financing. Governmental agencies typically have a lower minimum credit score and down payment requirement for qualification. Lenders are also more willing to extend these types of loans to fair or bad credit borrowers because the US federal government insures these loans. Fannie Mae has the Fannie Mae HomeStyle Renovation loan program, the FHA has the FHA 203k rehabilitation loan program, HUD offers the HUD Title I Property Improvement loan, the USDA has the Section 504 Home Repair Program, and the VA offers the VA renovation loan which is a type of cash-out refinance. You may be eligible for one or more of these different types of loan programs to help with any home repairs that you may need to complete. These different programs will have different requirements and they may need to approve your plans before you get the funding. However, they are a good option for lower-income borrowers with fair to bad credit.

Home equity loan: A home equity loan, or second mortgage, is an upfront lump-sum payment from a mortgage lender that you pay back over time with monthly payments. You can use the upfront payment to complete any home repair projects that need to be done around your home and then pay back the loan plus interest over time. This is a fixed-rate loan that is valued based on the amount of equity you have built up into your home. Equity is essentially the difference between the value of your home and the balance of your mortgage. The more you have paid down your mortgage and the more the value of your home increases, the more equity you have to borrow against if need be. The two main drawbacks of using a home equity loan to complete a home repair project are that you will have a second monthly payment you will need to make on top of your current mortgage, and if you happen to fall behind on those payments, a lender may be able to sell your home to pay the loan balance in full.

Home equity line of credit: If you have at least 15% or 20% equity in your home, you may be able to qualify for a variable rate home equity line of credit. A HELOC is a revolving line of credit that you can borrow against up to the borrowing limit established by the lender. Essentially, when you apply for a HELOC, the bank or lender will approve you for a certain amount, let us say $60,000. As long as the HELOC is open, you can borrow as much or as little of that $60,000 and pay it back over a period of time with monthly payments. Again, a HELOC, like a home equity loan, is a secured line of credit that uses your home as collateral to secure the funds. Fall behind on your payments and you risk losing your home.

Personal home repair/improvement loan: If you already have a second mortgage or you do not like the idea of using your home as collateral to secure a loan, then a personal home repair loan is an unsecured personal loan that does not require any collateral. Depending on the lender, a personal home repair loan could be for any amount up to $100,000 with a potential loan repayment period of up to 12-years. To qualify for one of these loans, a lender most likely will review your credit history, verify your employment and income, take a look at what other existing debt payments you have, and they may even look at your personal banking information to see how you manage your money and if you are able to save. If you pass the test and qualify, you could be approved for a loan and receive the funds the same or the next day. Personal home improvement loans are perfect for good credit borrowers who can qualify for lower interest rates and who do not want any interference from the bank or the lender. Once the loan is approved, a lender is not concerned with how you use the money as long as you continue to make the loan payments on time and in full each month.

As you can see, there are plenty of finance options available to those who are looking to complete minor or major repairs on their home. Depending on your situation, some methods of financing may be better than others. You owe it to yourself to take the extra time to review all of your options before committing. The wrong decision may unnecessarily cost you much more money in the long run.