How to Save for a Major Renovation Project

How to Save for a Major Renovation Project
  • Opening Intro -

    You've decided to take the plunge by undertaking a major home renovation project that you have been putting off.

    You don't have your money in place just yet, but give it another six months -- perhaps one year -- and you should be able to tackle the project.

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Renovation Project Options

Unless you have cash on hand, you will need to save money for your major renovation project. There are some other ways that you can assemble cash too including the following:

1. Tap your savings. Your savings account is paying out below 1 percent — money that is sitting there and doing virtually nothing. In fact, with inflation outstripping your bank savings account interest rate, you’re gradually losing money. Tap your savings account to begin pulling some money together. Also consider the excess money you have sitting in your checking account, earning you absolutely no interest.

2. Borrow from your retirement account. Be careful here: when you borrow money from your 401(k) or 403(b) account, you’ll need to pay it back. If you don’t, you’ll need to pay taxes and an early withdrawal disbursement charge. Still, that retirement money can come in handy, providing perhaps much of the money you need to pay for your home improvement project. If you’re older, at least 59 1/2, you may not need to pay the funds back, avoiding extra fees but not your tax obligation.

3. Take out a HEL or HELOC. There may be enough money tied up in your home to pay for your renovation project. If so, you can approach a bank about tapping your home’s equity. You have two options here: an equity line of credit or an equity loan. Both options can give you the cash that you need to finance your project. Obtain loan quotes from several banks before moving forward. See if you can avoid closing fees as you weigh your various loan offers.

4. Tighten your belt. Your may be able to come up with a significant amount of money toward your home renovation project by tightening your belt. Cut what you spend on cable, Internet connection and your cell phone, and put off that new car purchase for another year or two. Keep in mind that when your renovation project is completed you will incur higher costs for homeowners insurance and your property taxes.

5. Refinance Your Mortgage. If you are saving for a home renovation project, you might be able to start saving money right away if you refinance your existing mortgage. National mortgage rates are extremely low, and many home owners have been able to save considerable money each month on their mortgage payment.

There are several refinance options available, but one of the most common and most affordable options is the FHA streamline refinance. Home owners are able to lower their monthly interest rate and roll the cost of the refinance process into the loan, which means that you can refinance and start saving money immediately. If you are looking to save to put money back into your home, a refinance is one of the fastest ways to find extra cash.

Financial Advisor

Speak with your financial advisor before moving forward on a major renovation project. She may advise you of the tax strategies you can take to ensure that overall costs are minimized and your tax burden reduced.

See AlsoHEL and HELOC Considerations

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Categories: Financing

About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Auto Trends Magazine", an online publication. Matt covers campus, consumer, business and financial topics on various websites and weblogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".