Understanding All Your Financing Options When Home Repairs Are Needed

14 May Understanding All Your Financing Options When Home Repairs Are Needed

Julian Lane

A 2018 report on the state of Americans’ emergency savings revealed that the median savings account balance was just over $4,800. However, that’s not enough to cover many of the emergency home repairs with which a homeowner may be faced. A new furnace, roof, sump pump, or major plumbing repair can set you back tens of thousands of dollars — and that means you may need some other means of paying to repair your home.
Insurance
A homeowners insurance policy will cover many of the home repairs you may face. And while there are many things that can happen to a property that isn’t covered by insurance, it’s always worth checking the fine print of your policy. Even if your insurance picks up a portion of the cost of a damaged roof, it could still save you thousands of dollars out of pocket. For example, a homeowners insurance policy will cover damage caused by fire, smoke, and theft, among other causes. However, it doesn’t cover things like floods, power outages, and earthquakes.
HELOC
A home equity line of credit (HELOC) is one of your best options if you’re in need of a large amount to cover an emergency repair. The money is derived from the value in your home, which makes it a good investment and a responsible use of money (as long as you use it for your home). You can tap into this resource as needed, up to 85 percent of your home’s value minus the balance remaining on your mortgage, but be very careful to use the money responsibly.
Cash Out Refinance
If you need ready access to cash for an emergency repair, using the equity in your home is a good way to acquire it quickly. A cash out refinance plan can help you make emergency repairs, though it may take time to find a good refinance rate. A cash-out refinance replaces your existing mortgage with a new home loan for more than you owe on your property. The difference comes to you in cash, which can be spent on home repairs, improvements or some other financial need.
Personal Loan
A personal loan can be a good option when you need money at a lower fixed-interest rate than other alternatives. It can easily be figured into your budget since the interest rate probably won’t change throughout the full term of the loan. It’s an unsecured loan, which means no collateral is needed, and you can approach other institutions than banks, such as peer-to-peer lending platforms. And if your credit rating is a problem, there are lenders who will make bad credit loans, though you can’t expect a favorable interest rate — be diligent in checking with multiple lending institutions before agreeing to any loan.
Credit Card
Credit cards are a last resort. If you lack sufficient equity in your home or can’t obtain a loan of adequate size, using a credit card to finance repairs is a good way to cover a home repair that can’t wait. Be careful to find a card with a good interest rate and pay the balance off as quickly as possible, as you never know when your card may be needed again.
Community Development Program
Community development programs are administered by local or state governments and financial institutions. Restrictions might include requiring that your income be equal to 80 percent of the community’s median income, while other programs may be targeted to specific demographic groups, such as single mothers or disabled people.
It’s important that you know what alternative funding options might be available if you’re one of the many homeowners who lack savings and are unprepared for a home repair emergency. Always shop for the best interest rate, though that may be difficult if your need is immediate. That makes it all the more important to understand your financing options.
Image courtesy of Pixabay