Paying for Your Home Improvement Project

January 13, 2022
Paying for Home Improvement Projects

Are you ready to start planning your home improvement project, but not sure how you will pay for it?  Should you pay cash for your project or finance all or part of it? Let’s take a look at some of the most popular payment options to help you determine the best way to pay for your home improvement project. 

Firstly, it’s important to consider the scope of your project and the health of your bank account. If your project is simple and relatively inexpensive you may prefer paying cash to avoid interest payments. If you have several upgrades in mind, you may be able to phase out each project based on how much money you have on hand.  One disadvantage to paying cash is that you’d be taking a liquid asset (money that’s available when you want it) and investing it into a fixed asset (money that is not readily available). Think about whether you’ll have adequate cash reserves to cover unexpected expenses when deciding to pay your home improvements with cash.

Home Improvement Financing

An advantage of financing your project is that you keep your cash on hand and instead use someone else’s money to improve or repair your home. When evaluating your options look carefully at the terms and make sure you can afford the payments before you leap. Below are some of the most common financing options that can be used for home improvement projects:

Cash-Out Refinance 

This option is a refinance of your first mortgage to access extra cash from your home’s equity. A cash-out refinance may be a good option if the interest rate is lower than the current interest rate on your existing mortgage. Consider the amount of years you have left on your mortgage and try to refinance your mortgage for a similar term to maximize your benefits. Work with a mortgage professional to get an estimate of the financing costs and the interest charges over the life of the loan to determine if it’s the right option for you.

Secured and Unsecured Loans 

A secured loan is secured by  a lien against your property or other assets. An unsecured loan - sometimes referred to as signature loan or personal loan - is not secured by any property. Both options are contingent on the borrower’s credit worthiness and meeting other underwriting requirements. However, unsecured loans generally require a higher credit score (680 and above), than secured loans do, to be approved.  The most popular secured loans include home equity loans and home equity lines of credit. In both cases, the borrower must make payments, but a secured loan must be paid in full when the property is sold.

Energy-Efficient Mortgages ("EEMs")

The Energy-Efficient Mortgage ("EEM") is a loan program insured by the Federal Housing Administration ("FHA") that can be used to refinance a house and make specific energy improvements by adding the cost of those improvements to your mortgage. Participation requires a home performance assessment by a Home Energy Rating System ("HERS") professional. An EEM pays only the home performance assessment and energy improvements.You can take out an EEM loan as a 15 or 30 year term and almost anyone who has satisfactory credit, and sufficient steady income to make monthly mortgage payments can be approved for a FHA-insured EEM loan.

PACE Financing

The Property Assessed Clean Energy (“PACE”) program is collateral-based financing that enables homeowners to use a portion of their home equity to cover the cost of home upgrades related to energy-efficiency, renewable energy, water conservation, and safety and resiliency. Although PACE financing is not based on  the homeowner’s credit score to determine eligibility, it does consider factors like mortgage and property tax payment history and income, etc. Additionally, the property must be located in a participating PACE community. A lien recorded against the property until the financing is repaid in full. 

PACE financing offers competitive fixed interest rates, financing amounts of up to $250,000, and terms of up to 30 years depending on the product’s expected useful life. PACE financing is paid through the property’s tax bill annually or biannually depending on the county’s tax billing frequency. Additionally, PACE financing comes with built-in consumer protections and safeguards.   

Projects financed through PACE:

  • Heating, Ventilation, and Air Conditioner (HVAC)
  • Windows and Doors
  • Roofing
  • Solar Panels
  • Earthquake Retrofit
  • Hurricane Protection
  • Landscaping and Turf
  • And much more

Applying for PACE financing takes less than 5 minutes and you could be approved same day. Click HERE to find out in seconds if your property is located in a PACE participating community.

Ready to apply? Call us at 844-736-3934 to get started today!

Important Disclosures

PACE financing is subject to approval. Underwriting requirements and restrictions apply. PACE financing is secured by a lien on the subject property and often required to be repaid upon refinance or sale. PACE financing is private financing that must be repaid in full. PACE financing is not a government subsidy. Renew Financial is a private company and not a government entity. The installation or construction of property improvements financed with a PACE assessment is provided through a home improvement contractor or other third-party provider, and not by Renew Financial or a government entity. Homeowners should perform due diligence before selecting a home improvement contractor. Financing provided in California through Department of Financial Innovation and Protection License No. 60DBO-90653.

All content provided on this blog is for informational purposes only. Renew Financial makes no representations as to the accuracy or completeness of any information found by following any link on this site. Renew Financial is not a financial or home improvement advisor and information contained in this post should not be viewed as legal or financial advice.