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What Are the Best Ways to Finance Minor Home Improvements?

First Republic Bank
August 15, 2022

Homeowners spent an average of $15,000 in 2020 (up 15% from 2019) on minor home expenses like decorating, renovating, repairing and homebuilding, according to a 2021 Houzz & Home report. Whether making regular repairs or taking on a new creative project, it’s crucial for homeowners to have a solid financing plan for minor home improvements to ensure projects are finished on time and on budget.

With a little creative planning — and a touch of financial forethought — you can keep your home properly maintained and design the sanctuary you and your family need. This guide will walk you through some key considerations and financing options you need to know before taking on a new home improvement project.

Major vs. minor home improvements

When starting a minor home improvement project, you’re likely to hear about major home improvements and minor home improvements. While they may sound similar, they are very different when it comes to expenses and scope (complexity, time to complete, etc.).

A minor home improvement is a small home project such as upgrading fixtures and appliances. In these cases, a personal line of credit or similar loan product may be the best financing option. Other minor home improvement projects could include new window installations, landscaping, flooring installation, a kitchen or bathroom remodel and more.

A major home improvement, on the other hand, covers larger projects such as a full home renovation, replacing walls, or installing new piping and electrical wiring. Typically, these may require longer project plans, extensive work with contractors and may significantly alter the value of your property. In these cases, a different financing option with a longer draw period and higher balance may be more suitable.

Should I finance my minor home improvement?

Before choosing a home improvement financing option, you should make sure you’ve adequately planned and prepared for the project you are undertaking. Maybe you have been inspired by a recent design show or already have a dream kitchen in mind — whatever your reason for thinking about a home upgrade, be sure to consider all aspects of the project. This can vary based on the exact project you’re planning and may include vastly different timelines, materials and anticipated costs.

Some of the larger questions you should consider before diving deeper into financing may include:

  • What is a reasonable project timeline?
  • What are the expected costs, and how do they compare to the average?
  • Do I have or need a contingency plan for unexpected overages or additional work?
  • Are there upgrades to choose from, such as upgraded materials, professional installation or other add-ons?
  • Have I factored in the costs of maintenance or regular repairs after project completion?

As you consider different financing options for your home project, we always recommend you speak with a qualified financial advisor to ensure you choose the right solution for your specific needs.

How can you pay for minor home improvements?

As a homeowner, you have several options when it comes to how to finance home improvements. While saving up funds for a project may appeal to some, it can restrict projects with both time and cost and may not be enough to cover any unexpected expenses.

A smart financing method can allow you to cover costly upfront and surprise expenses without greatly altering your immediate financial situation. Carefully researching each method and its unique benefits will help you find the best option for your home and financial needs.

Open a personal line of credit (PLOC)

A unique option for paying for minor home improvements is a personal line of credit. Lines of credit are typically offered by banks and credit unions. A personal line of credit gives access to a set amount of funds that the borrower can draw over a certain period of time (the draw period).

One key benefit of a personal line of credit is that it is not tied to the value or equity in a home, such as a home equity line of credit (HELOC), making it a very flexible lending option.

First Republic’s Personal Line of Credit, for example, can offer access to funds required to manage your home-related needs and upgrades, big-ticket family costs and more so your monthly cash flow is not interrupted.

Take out a home equity line of credit (HELOC)

Another home remodel financing option is a home equity line of credit (HELOC). A HELOC operates similarly to a PLOC by giving you revolving access to credit over a predetermined period of time. The main difference between the two is that a HELOC is collateralized, or secured by the equity in your home. A HELOC is typically used to cover larger home remodeling projects.

Apply for a personal loan

You also may consider taking out a personal loan to finance your minor home improvement project. A personal home improvement loan is an unsecured lump sum loan that can be used to cover various expenses. However, personal loan options typically come with additional fees such as prepayment and origination fees. It’s important to review loan terms to understand what repayment would look like for you.

Swipe a credit card

Another option available to you is using a credit card to cover the costs of a minor home improvement. Credit cards offer convenient, and often immediate, access to funds, which is key to covering labor and supply costs and avoiding any delays.

While some credit cards may offer an attractive 0% interest period, it is crucial that you understand the scope and expenses of the projects you are undertaking. For example, this approach may make sense if you are purchasing new appliances but would not be appropriate for larger home improvement projects – like a kitchen or bathroom remodel. This is because, after the 0% period ends, most credit cards come with higher interest rates and fees that can impact your budget and may have larger implications for your credit score and future lending prospects.

Tap into savings

Using funds from your savings to finance a minor home improvement is an option, too. On one hand, this doesn’t require you to take out a loan or line of credit. However, once spent, those funds can’t be used to cover future expenses or potential emergencies. For some, taking on an additional monthly payment is worth it to maintain and grow their savings.

Are home repairs and updates tax deductible?

Under the Tax Cuts and Jobs Act of 2017, the interest on home equity lines of credit or home equity loans may be tax deductible if the funds from that line of credit are used to “substantially improve” the borrower’s home, according to the Internal Revenue Service (IRS).

In general, expenses for home improvements aren’t tax-deductible, although there are some exceptions for the installation of energy-efficient or medically necessary equipment.

Tax advantages change frequently, so it’s best to chat with a qualified tax professional before making any pricey upgrade.

How a Personal Line of Credit can fund minor home improvements

Minor home improvement projects, no matter how well planned, may result in unexpected hurdles. Not having a contingency ready in case additional money needs to be withdrawn can lead to project delays, among other issues. That’s why it’s often efficient to explore financing early — before it’s even needed.

While there are many options to finance your minor home improvements, the best solution depends entirely on your personal circumstances and goals. First Republic’s Personal Line of Credit can help you with your minor home improvements and more — connect with a banker today to see your available options.

First Republic’s Personal Line of Credit1 – access funds with fixed rates from 3.95% APR (with discounts)2.

The strategies mentioned in this article may have tax and legal consequences; therefore, you should consult your own attorneys and/or tax advisors to understand the tax and legal consequences of any strategies mentioned in this document. This information is governed by our Terms and Conditions of use.

Contact your legal, tax and financial advisors for advice on deciding whether this is the right product for you. Terms and conditions apply.

Product is not available in all markets. For a complete list of locations, visit firstrepublic.com/locations. Applicants must meet a First Republic banker to open account. This is not a commitment to lend. Loan approval is subject to a completed application with associated documentation and confirmation that income, liquidity, credit history and other application information meet the minimum requirements for this product. Applicants should discuss line of credit terms, conditions and account details with their banker.

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