Assuming your client would like to avoid using any type of cash reserve to fund home remodeling and renovations, below are options for borrowing money needed for their projects. Some are based solely on your clients’ credit-worthiness. Other options rely not only on credit-worthiness, but also on the value added to their home when the projects are completed and/or to the current equity position of their primary residence.
Credit Cards - According to Bill Trees, national renovation program manager, Wells Fargo home mortgage, “credit cards are a quick source of funding, especially for smaller projects. Most credit lines limit the amount available, even for the most credit-worthy borrower. For larger projects this may not be a reasonable option. You should warn your client that the cost of these type of funds is typically much higher than other borrowing options, especially if the funds are cash advances. And the interest rate on these cards are typically variable and are not tax deductible.”
Signature Loans - Like credit cards, this type of money is available based only on a borrower’s credit-worthiness and there is no collateral. Interest rates and charges will be higher than on loans that rely on collateral. Funds borrowed through signature loans also carry a fixed monthly payback, over 2-5 years.
Collateral Secured Loans - This could be great option if your client has unique items that can be used as collateral. RVs, classic cars, motorcycles, musical instruments, artwork, etc. can all be used as collateral for a shorter term (2-7 years) loan. The amount of the loan is limited, based on the value and age of the collateral. Whether the vehicle is owned “free and clear” is a determining factor of the amount of cash available. This may not the best option for larger projects, but is an effective way to access funds quickly. Typically, a bank or credit union can close a vehicle loan in as little as a week and interest rates are much lower than credit cards. Other unique items may take longer to obtain financing.
This is the second article in part four-part series, published every Tuesday in May, where the co-founders of the Living in Place Institute detail different financing options contractors should be aware of when working with a living in place client. Read more coverage on Financing Options for the Future here.
