A renovation can transform your living space into the home of your dreams. You can make specific changes that enhance the enjoyment you get out of your home. However, a renovation can be hugely expensive. All homeowners need to make smart decisions about financing the project.
Financing Options for Your Renovation
The homeowner has several options to finance a home renovation:
These are the most common ways to finance a renovation.
The Risk of Bankruptcy
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If you take on additional debt, you need to fit that monthly payment into your personal budget. Consumers who take on more debt than they can afford run the risk of bankruptcy. Bankruptcy is defined as a legal proceeding involving a person or a business that is unable to repay outstanding debts.
Investopedia explains several reasons why an individual may declare bankruptcy. Here are the top 3:
Understanding these situations can help you make better decisions about your own finances.
Budgeting your Payments, Improving your Credit Rating
To properly finance your renovation, determine how much of a loan payment you can afford. That amount should fit into your monthly budget. Your budget should include all of your expenses, and some amount of savings.
You can find loan calculators on the web. These tools allow you to plug in a dollar amount, interest rate and a loan repayment date. The calculator will give you the monthly payment, based on the assumptions you use. A borrower can adjust the components and change the monthly payment amount.
As you borrow money and repay it on time, you’ll build your personal credit rating. Over time, a better credit rating will allow you to borrow more money- and pay lower interest rates.
Use these strategies to finance your remodeling. You can make the home improvements you really want, and work your way toward a better credit score.
Sources: Via Sotheby’s Homes.
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