10 Ways to Finance Your Next Home Improvement Project.

1. Mortgage Refinance (Refi) 

If you are a homeowner, then you probably already know about this option. It's your mortgage,  just starting it over. 

Pros: 

Low Payment: You can get up to 30 years to repay, making for possibly the lowest monthly payment you can get in the finance world and probably the lowest long-term interest rate you can get as well.  

Consolidation: You can potentially reduce your total monthly out-of-pocket costs by refi-ing and consolidating home improvement costs into a mortgage. This can be especially beneficial if you are currently in a higher interest rate mortgage and your current mortgage is almost paid off.

Cons: 

Time: If you need your home improvement paid for today, then waiting 30 days to process a refinance isn't going to work. Also, time and interest rates are best friends, the longer it takes to pay off the loan the more your end up paying over time 

Paperwork: Get ready to give a mortgage company an hour of your life just in filling out paperwork and giving them documentation about your finances over the last 2-3 years.

Typical Qualifications:

2. 2nd Mortgage

You probably already know about this too, or should I say two, as in 2nd. It's a mortgage, only now you would have another one. It is subordinate to your first mortgage, meaning there is a higher risk of the lender not getting paid back. More risks means more interest and fees.

Pros:

Cons:

Typical Qualifications: 

3. Home Equity Line of Credit (HELOC)

This is like having a  credit card that's guaranteed by your home. 

Pros: 

1. Access: Once the HELOC account is open you can make purchases as you with.

2. Flexibility: Pay interest on the account balance, not the total value on the credit line.

3. Low payments: Some lenders allow you to pay less than the interest they charged for the month.

Cons:

1. Adjustable rates: Rising interest rates can increase your payment and possibly make the payment unmanageable.

2. Risk: You're home is the collateral and the lender could force you into foreclosure if you are unable to pay.

Typical Qualifications:

4. Credit Card

If you don't know what a credit card is you might be living under a rock. 

Pros:

1. Ease: If your contractor accepts credit cards, you have a high credit enough limit, and your interest rate is reasonable, then this is an easy way to pay.

2. Points: If you have a card that gives you points on your purchase this could be a perceived discount to you contact price. 

Cons:

1. Dangerous: Missing a payment could send your rate to 29.99% and if you have a large balance at this time it wouldn't be pretty.

2, Emergencies: If you tap out your credit limit and need to make an emergency purchase, then your credit card won't be there to help.  

Typical Qualifications:

5. Property Accessed Clean Energy (PACE) Financing

PACE financing is a loan you repay through an increase in your property tax bill. The loan can be used for water and energy improvements.

Pros:

1. It is like your home is taking the loan. If you sell your, it is possible for the a buyer to assume the loan.  

2. No FICO credit requirements and 5-30 year repayment terms.

3, These loans are a specific "pot of money" designed for water conservation and energy efficient improvements. 

Cons:

1. It's on you property taxes, you can't claim bankruptcy to get out of paying.

2. Forced foreclosure. While I have not ever heard of a PACE company foreclosing on a home, their disclosures say it's possible.

Typical Qualifications:

6. Residential Energy Efficiency Loan (REEL) Program

REEL is a California state-sponsored loan program (CHEEF) that could potentially be repaid through a new line item on your utility bill. However,  you (the borrower) do not have to be the a utility's customer to apply.

Pros: 

Cons:

Typical Applicant Qualifications:

Property Qualifications:

Eligible Improvements:

7. Credit Based Financing

These programs look at your credit score and other factors to determine how much you can borrow and your interest rate.

Pros: 

1. No lien on home

2. Terms are typically limited to 12 years. 

Cons:

1. Can limit your ability to borrow more money.

2. Can be sent to a collections company.

Typical Qualifications:

8. Equipment Lease or Service Agreement

Paid for via a monthly bill, you get the benefit of the improvement without the responsibility of ownership. 

Pros:

Cons:

Typical Qualifications:

9. UCC Filing Backed Loan 

This is a loan secured by specific or blanket collateral enforced by a UCC filing on your property's title.

Pros: 

UCC flings allow lenders use the improvement installed at your property as collateral for the loan they give you. 

Cons:

The lender could repossess the improvement installed at your property if you don't pay the loan.

Typical Qualifications:

10.  Independent Lenders

"Angel Investors" as some call them, independent lenders, offer money out of their own pocket.

Pros:  Potentially less paperwork

Cons: High interest rates

Typical Qualifications:

Qualifications vary greatly as the terms of the deal are based on each individual investor's appetite for risk. 

Bonus: Non-Traditional Financing Options

There are exotic types of loans with enticing features, they're definitely not for everyone. Some of these features may include: