When financing a remodeling job, don't turn Tool Time into Fool Time
By Salvatore Caputo • Bankrate.com

Is it "Tool Time" at your house? Do you need to put in a new deck, add a garage, install windows or remodel the kitchen?

Whether you decide to use an outside contractor or go the Bob Vila do-it-yourself route, you're going to need some money to get the job done -- and consumers should inspect their financing options as closely as they would green lumber.

When looking to finance a home improvement, "Consumers need to ask themselves a series of questions," says G. Richard Bright, senior vice president of the home equity lending division at Countrywide Credit Industries Inc. The Calabasas, Calif.-based company is the corporate parent of Countrywide Home Loans, one of the nation's largest mortgage lenders.

What to ask yourself

Lenders agree that those basic questions are:

• How long is it going to take to do the whole job?
• How much is it going to cost altogether?
• Do I need the money for anything beyond this particular set of home improvements?

Your answers will determine whether you should choose from finance options such as a credit card, a home-improvement loan, a home equity loan or a home equity line of credit.

"There is no one plan that is right for everybody," Bright says. "If the job is just a couple of hundred dollars, I'd use the credit card."

The credit card generally charges higher interest than other options. However, when you're borrowing a small amount, it's cost-effective and relatively hassle-free because the other options can involve a good deal of paperwork and upfront costs such as appraisal and origination fees.

"If the job is going to be more than (a few hundred dollars) or it's going to be in stages -- maybe add a garage, do some pool repair, and remodel the bathroom later on -- then options lend themselves toward using the equity in their home," Bright says.

The equity is just sitting there

Tapping into the equity of your home is a low-cost credit vehicle well-adapted to financing home improvements. Normally, equity just sits there growing until you sell your house. Home equity loans and home equity lines of credit (known in the lending biz as HELOCs) let you use this asset without selling your home -- and, hey, isn't that why you're planning a home improvement? Because you plan to stay for a while?

The home equity options generally have it all over the old-fashioned home-improvement loan, although there are cases when such a loan is the right option, says David Heffner, Midwest sales manager of Standard Federal Bank, which operates in Michigan, Ohio and Indiana.

"A lot of banks have home-improvement loans designed for low- to moderate-income families, but typically, the home-equity lines and loans offer you a better rate structure," he says.

Article continued at http://www.bankrate.com/brm/news/loan