Should we take out a HELOC to pay for our basement remodel?

We are thinking about getting a HELOC to pay for our basement remodel. What are some things we should consider? 

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Thanks for asking your question and sharing your concerns. 

Whether you should or shouldn’t take on debt to remodel your basement depends on a few things: how financially stable are you, do you have an emergency fund, and can you wait? 

There are several options to make this happen personal loan, credit cards, saving, and waiting. I will focus on using a HELOC and savings. 

One option is to save up and pay for the remodel in cash. This option is ideal but will take time to save up those funds. You need to estimate what the remodel will cost and set a time by when you want to have the money available. Once you know how much you will need, you can use a sinking fund to start saving for that goal. Figure out how much you need to save to reach your goal in time and divide it by months or paychecks. Then, start setting those funds away. For example, let’s say you need to save $10,000 for this remodel and give yourself two years to make it happen. You can break down those $10,000 divided by 24 months, where you would need to save approximately $417.00 per month. Let’s say you get paid biweekly; you could save $192 per paycheck for the next two years. 

Let’s assume you are financially stable, have a fully funded emergency fund, a secure and steady income, and don’t want to wait for the remodel. You are considering taking on debt to make it possible now and are looking into a HELOC.

What are some other options for remodeling your basement: 

One option is to get a HELOC and do the full remodel. Before taking on a secured loan to cover the remodel, a few things to consider are the fees and costs associated with the HELOC. What is the interest rate, and is it fixed or variable? Are there any fees or charges for the loan? Understand that you are putting your home as collateral; if something happens and you can no longer make the required payments, your home would be at stake. A stable job with a steady income and a 3-6 month emergency fund can give you a certain level of security. 

A second option to consider is breaking down the remodel into phases. Allowing you to move forward on the project but not take on the total costs of the remodel. You can pay off each step before you go to the next until the basement is complete. It will take longer, but it also gives you more leeway if an emergency occurs. 

Lastly, you can combine the previous options, whether that’s getting the basement safe and ready to use with the HELOC loan and saving up for the rest. That way, you have access and can use the basement, but those finishing touches will still need to be added as you can pay for them. Those will be added in the next step of your project.

Most things are not an all-or-nothing scenario when it comes to your finances; taking a step back and reaching out to others can help provide you with some insight and different perspectives on what you are working on. 

Until next time, 

Maritza H.