People often neglect the basement of their house, allowing spiders and other insects to inhabit. But you can turn this area into a comfortable living space. A finished basement adds value to your home; therefore, when the house is up for sale, you can expect to get a good value. Whether you want to turn it into a game room or guest room, you have to make a certain investment. Fortunately, there are various options through which you can finance your basement remodelling. Before we discuss the financing options, let’s figure out how much it will cost to remodel your basement.
What Are The Financing Options For Basement Remodel?
On average, the cost to renovate your basement can be around $30 to $50 per square foot. But this cost can further increase depending on the material, labour, and types of renovation. To finish a standard basement, you can expect to pay approximately $30,000. Again, this average can vary broadly based on various factors that include the size of the basement, cost of labour, materials, etc.
Make sure you get the quote from a couple of service providers before you decide. This will allow you to compare the price and negotiate to get a more suitable deal. Moreover, when selecting a contractor, consider only a reputed one with good customer reviews.
If the estimated cost is going out of the budget, then try to make your project more modest. For instance, instead of a full-bath, you can do a half-bath in order to save cost. Moreover, you can also select affordable furnishing and materials. Choosing modest furnishing and material does not mean that you have to compromise with the quality. You might have to research a lot and choose high-quality materials at economical rates. Moreover, you can also take up some work yourself if you are on a really tight budget. If you have painted walls before, you and your friends can do this. Doing little things yourself cautiously can be a great way of saving a lot of money.
What Are The Financing Options For Basement Remodels?
After estimating the cost of the overall basement remodels process, the next step is to look for financing options. Here are some of the reliable ways you can pay for your basement remodel:
- Home Equity Loan
In this form of a loan, you can avail of lump-sum money, which you can repay between 5 and 15 years. As the name suggests, you can borrow the money against your house’s equity. You can generally get a loan up to 85% of the equity of your home. The interest of the home equity loan remains fixed throughout the loan period. But the rate of interest is generally higher than the home equity line of credit. Considering that you get a lump-sum amount, a home equity loan is considered ideal for large house projects. Initially, you will have to pay higher payments as you will be paying back principal as well as interest.
- Home Equity Line Of Credit
A home equity line of credit harnesses the equity of your home. Equity is defined as the difference between the current value of your property and the remaining amount you owe as the mortgage. Generally, you can borrow around 80% and 90% of the equity. These types of credits are mainly used to finance home improvement projects. This line of credit allows purchases on a rolling basis for a specific time period called a draw period. You can draw money from this credit until the maturity of the draw period, or you have used the maximum limit. Post this, you will enter a repayment period, wherein you will start to repay the amount with an interest rate. These interests can vary across the periods of the loan.
- Contract Financing
A majority of contractors provide clients with financing options. They collaborate with lenders, so each contractor will have different interest rates and terms of the loan. However, if you take a loan for the short term, you may get interest-free financing with the contractor. But make sure to confirm whether or not there are any deferred interest charges. In deferred interest, you will not be charged interest as long as you pay off the full balance within that financing period. If you have a remaining balance, then you will have to pay interest starting from the date of the procurement.
- Personal Loan
Personal loans can be secured or unsecured but come with a fixed rate of interest. Depending on the lender, you can get a loan between $1000 and $50,000 and over. And, you will have to repay the borrowed amount between 12 and 60 months, based on your loan terms. Personal loans are disbursed quite quickly, sometimes right after your application is approved. And you can use the fund for a wide range of purposes, making it a flexible financing option. Although you do not necessarily need a good credit score to avail of a personal loan, the interest on unsecured loans will be higher if you have a low credit score.
- Federal Housing Administration 203(k) Loan
If you purchase a fixer-upper, you can obtain money for renovation via a single FHA 203 (K) loan. Additionally, if you already have a mortgage, you can acquire a 203 (k) loan for certain purposes, including finishing the basement. There are two types of 203 (k) loans – a standard 203 (k) loan and a limited 203 (k) loan. The former is used for major renovations, and you can get the latter for minor remodels that have structural changes. Moreover, in a standard 203(k) loan, you have to work with the consultant who liaises with the contractor and oversees the entire project, including the transfer of funds.
Remodelling your basement offers approximately a 73% return on investment when you decide to put your house on sale. When you decide to renovate your basement, the first step should be to get the cost estimate, evaluate the financing options, and choose the best suitable financing option. This will allow you to move ahead with the actual renovation process without any financial roadblocks.