Financing Improvements

As we have mentioned, making improvements to your home is one of the smartest investments you can make. Many homeowners find for every dollar they spend on improvements, they get back two dollars in home value. Oh, and it’s also nice you get to live in this newly snazzed up home. Let your mind wander with the possibilities: new kitchen counters, perhaps hardwood floors, a heat pump to finally keep things chill in the house during those long summers, a roomy and elegant bathtub you will never want to leave.

Now bring those dreams back to earth for a moment. Yes, making improvements will adds quality of life and make you money, but you need money to start with. Home remodeling projects are no small matter, often costing in the thousands and unless you have a gift for lottery scratch tickets, you probably don’t have that kind of money lying around. It’s time to think about getting financing for that project.

A good funding option for you may be a Home Equity Line of Credit (HELOC). More and more lenders are offering home equity lines of credit. By using the equity in your home, you may qualify for a sizable amount of credit, available for use when and how you please, at an interest rate that is relatively low. Furthermore, under the tax law--depending on your specific situation--you may be allowed to deduct the interest because the debt is secured by your home.

How Does It Work?
A home equity line of credit is a form of revolving credit in which your home serves as collateral, because the home is likely your largest asset. With a home equity line, you will be approved for a specific credit limit, the maximum amount you may borrow at any one time under the plan. Many lenders set the credit limit on a home equity line by taking a percentage (say, 75 percent) of the home's appraised value and subtracting from that the balance owed on the existing mortgage. In determining your actual credit limit, the lender will also consider your ability to repay, by looking at your income, debts, and other financial obligations as well as your credit history.

Many home equity plans set a fixed period during which you can borrow money, such as 10 years. At the end of this "draw period," you may be allowed to renew the credit line. If your plan does not allow renewals, you will not be able to borrow additional money once the period has ended. Some plans may call for payment in full of any outstanding balance at the end of the period. Others may allow repayment over a fixed period (the "repayment period"), for example, 10 years.

Once approved for a home equity line of credit, you will most likely be able to borrow up to your credit limit whenever you want. Typically, you will use special checks to draw on your line. Under some plans, borrowers can use a credit card or other means to draw on the line.

Now that you have your credit line in place, you can go ahead and call the contractor as visions of repainted bedrooms and new bathroom cabinets dance in your head. It’s your home, make it look the way you envision it; you now have the cash to make it possible.