Guide To Home Improvement - Using Personal Options to Finance Your Home Improvement Project

If you have a major remodeling project in mind and are considering using personal funding, such as your retirement funds, 401Ks, or stocks and bonds, look at the positive and negative implications of such a financial arrangement before making a decision.

There are a variety of ways to finance both small and major home remodeling projects. Common options include a home equity loan or line of credit, store credit line, or your credit cards. If you're looking to avoid paying interest on borrowed money, however, you might consider using personal funds that you already have. Like any other financial arrangement, however, you should fully educate yourself on the long-range implications.

Retirement Funds
Money that you have set aside for retirement is a critical portion of your financial future. While retirement funds are available for early withdrawal, you will typically pay anywhere from 10% to 40% as a penalty for early withdrawal and pay taxes as well. If you believe that the market value of your home after your renovation project will make a profit sufficient to cover the loss of the retirement money plus the penalties and taxes that you have to pay, then this might be a viable alternative. Otherwise, you might want to consider other options before you touch your nest egg.

401Ks
A company sponsored 401K plan is another great way to feather your retirement nest egg. Early withdrawal of 401K funds is also subject to IRS taxes and penalties. Consider all of the implications before you make the decision whether or not to use your 401K to finance a remodeling project.

Stocks and Bonds
It's tempting to sell stocks and bonds to finance renovation projects. There are, however, financial implications that you need to consider. You may have to pay taxes on capital gains and you'll no longer receive dividends that you may have been receiving.

Benefits of Remodeling Projects
A remodeling project generally increases the value of your property significantly and will usually have a positive effect on the resale value of your home. If you plan to use your personal funds to finance a remodeling project, make sure that the financial return is enough to cover the replacement of funds from your personal resources. The optimum way to avoid credit interest rates and reducing your retirement funds is to use cash, if you're lucky enough to have a surplus.