If you are getting serious about remodeling your home, then it’s time we had the talk about money. No, not the talk about how much it will cost. I want to get you thinking about where you will get the money.

I should say right up front that I am not a financial or tax advisor. I can’t tell you which of the ways to get money for a remodeling project is best for you. I just want to give you the basics to help you start the process of deciding for yourself.

Let’s start with one financing option you are bound to be familiar with-cash. Whether you got the remodeling cash the old-fashioned way (saved up for it) or won the lottery or had a big tax refund (what’s that like?), using your own money is cheaper than paying someone else for the use of theirs. Of course, if the cash you are thinking of using is your family’s emergency stash, then it’s not the best idea to sink it into a new kitchen.

Another option you’re no doubt familiar with is a credit card. Using your credit card(s) means less hassle, and no waiting for approvals to have the money. If your home improvement project is urgent (leaky roof in rainy season) a credit card might be the best bet. You will pay for that convenience, as credit card interest rates are way above the rates of other financing options. You may also find that your contractor doesn’t take credit cards, or prefers not to because of the 3%-5% service charge they pay on each transaction.

So if you don’t want to wait to save the money to pay cash, and you don’t want to use a credit card, how can you get the money for home improvements? If you own a home in most parts of San Diego, chances are you have the money you need in the form of equity in your house. There are several ways to tap this resource: a home equity line of credit, a second mortgage, or a cash-out refinance are some of the most common.

All of these options are similar because they all borrow against the equity in your home. Since your home is the security for each of these loans, if you aren’t able to make the payments, you could lose your home. You may also be able to write off some or all of the interest expense in loans of this type (please check with your tax expert on this one). However, there are differences between them.

A home equity line of credit is a revolving credit plan, like a credit card, with a specific credit limit based on the equity in your home. The funds are obtained by writing checks as you need them and payments are made only on the money you use. For example, if your line of credit is for $100,000 but you only use $60,000, the payments are based on the $60,000 and not the full $100,000.

A second mortgage is disbursed as a lump sum and is repaid over a fixed period of time under pre-set terms, just like your first mortgage. Since you receive the money all at once, your payments are based on the total amount, even if you don’t end up using all of it for your remodeling project.

A cash-out refinance is another way to use your home’s equity. If your home is worth significantly more than you owe on it you may be able to refinance your first mortgage for the appreciated value of the home. After paying off the original loan, the leftover money can be used to pay for remodeling.

Another idea is to look for a lender that offers construction or remodeling loans. This type of loan is based on the projected value of your home after the improvements are made. In some cases you can borrow up to 130% of the value of the existing home.

Before actually applying for a loan, talk to several lenders about all your options. Keep in mind, the lender will tend to focus on the options they carry. This is why many people like to start with an established mortgage broker as they usually carry many more types of loans. Besides helping you understand your options and the various trade-offs involved, the broker or lender can help you pre-qualify you for one or more loans.

Knowing how much you will have to spend will be a big help when you are meeting with a contractor (and I hope it’s K-CO!). Don’t be afraid to be up-front about your budget. That will help you separate the “need-to-have” features from the “nice-to-have” on your wish list. Together you can plan a project that gets you the home of your dreams that is within your financial means.

Tags: clairemont general contractor, cost of construction, Custom home builder, help paying for remodeling, Remodeling San Diego