One of the less enjoyable aspects of home ownership is the inevitable need to do home repairs. No matter how pristine the condition was when you bought the home, any home will need upkeep and maintenance over time. And the longer you defer the maintenance, the more expensive it becomes.
Perhaps the time has come for you to sell your home, and it’s looking like you’ll take a big hit on the price unless you can do some repairs – but that’s expensive, and you’re low on cash. Here’s a list of 9 creative ways to pay for home repairs and prepare your home for sale.
#1: Have a garage sale. If you’re going to be moving in the next few months, you probably will need to get rid of a lot of stuff. Why not start now? You may have unused vehicles, tools, appliances, jewelry, artwork, collectibles, and other potentially valuable items lying around just collecting dust that don’t add much value to your life. Consider selling them at a garage sale, on Craigslist, or eBay to add a few hundred or thousand dollars to add to the repair fund.
#2: Use a HERO Loan. A HERO Loan is meant to help homeowners do energy-efficient upgrades to your home (such as solar panels) but in fact can be used for a number of projects including heating and cooling, plumbing and fixtures, lighting, roofing and walls, windows and doors, and landscaping. These loans are paid on your property tax bill and are easy to qualify for. Check out the various products that qualify for HERO loans here.
#3: Get a Home Equity Line of Credit, Home Equity Loan, or do a cash-out refinance. These loans are harder to obtain than HERO loans, and you need a significant amount of equity in your home to be able to qualify for loans like these. Most lenders will want to see you remain with about 20% equity in your property after you take the loan out, and that may be difficult for many owners. However, some lenders may give equity loans up to 90% value, so it pays to shop around.
#4: Do a FHA 203(k) refinance. This loan is different than the loans in item #3 above in that you don’t need to be left with 10-20% equity after taking out the cash. A FHA 203K loan give you a new loan up to 96.5% of the as-repaired value, up to the FHA loan limit (which varies from county to county). The catch is that you need to qualify to for the full loan amount, and the interest rate will be charged on the full loan balance, and if you drop down below 20% equity, you will have to pay mortgage insurance too, so this may be an expensive option.
#5: Write checks with a credit card. It’s not a great idea to borrow a lot of money with a credit card, but if you pay off the balance in 2-3 months the cost will be minimal, and you can’t beat the convenience. Many contractors and handymen do not accept credit cards, but there are companies out there that let you write checks that get paid by your credit card (for a nominal fee). Using Plastiq, for example, you can pay any contractor or handyman via a check and the charge goes to your credit card – and yes, you get reward points for it to boot!
#6: Get contractors to extend credit. Some contractors will agree to give short term financing on some of the bill. They’ll usually want a big chunk down (think 50%), but some contractors will wait for 2-3 months to be paid the remaining 50% or so of their invoice (which gets paid out of escrow).
#7: Borrow from your 401(k). With your employer’s permission, many 401(k) programs will allow you to borrow from those savings for any reason (including home improvement) up to $50,000 (or half your vested balance, whichever is less). The good news is, you don’t have to pay tax on the withdrawal, but you do have to repay the loan (with interest).
#8: Do final repairs just before closing. If your buyer has agreed to release their contingencies (all contingencies, including loan, appraisal, and inspections) in exchange for the seller performing some repairs, these repairs will naturally be done close to the close of escrow. If the work is completed just prior to closing, many contractors will accept full payment out of escrow, requiring no cash out of pocket from you.
#9: Borrow from friends or family. This is the last item on the list because so many people are reluctant to borrow from people they are close to. However for some home owners this will be the easiest source of a short term loan. Offer to write up and record a formal lien on the property to record the debt to offer the “lender” some security. You can sweeten the deal by offering them an attractive interest rate or by paying them loan points (say 10 points, or 10% of the loan amount, either up front or upon repayment).