How to Pay for a Basement

A finished basement makes an ideal game room.

A finished basement makes an ideal game room.

Instead of ignoring your basement and allowing only spiders to live there, finish and update it to add comfortable living space to your house. Whether you want to add separate rooms, such as a guest room and bathroom, or a large, open game room, you must find a way to pay for the basement home improvement project. Explore the details of each option to find the best financial choice for you.

Home Equity

Tap into your home equity to help pay for a home improvement. Finishing your basement usually adds value to your home, although not always as much as the money you spend. Depending on the type of renovation in the basement, you could increase the home's value up to 75 percent of the amount you spend on the project. Talk to your bank about a home equity loan or a home equity line of credit to use for home improvement. The loan gives you the full amount of money up front and requires monthly payments. You use the money from a line of credit similar to the way you use a credit card; take out just what you need, and your monthly payment reflects the amount you've used, not the total balance available.

Credit Cards

If you have a credit card with a high limit, you might be able to put part or all of your basement upgrade on the card. Ask your contractor if he takes credit cards before assuming you can use this option, or ask your credit card company to send you a checks that draw out of the credit card account. The downside of this option is that you can quickly rack up high-interest fees and lower your credit score, which can be negatively affected if you use more than 30 percent of your available credit. Using a credit card can get the work started immediately, though, without having to wait until you save up the money for the renovation project.

Title I Loan

The U.S. Department of Housing and Urban Development offers a program that insures lenders who provide home-improvement loans called the Title I program. You usually must pay 1 percent of the loan amount, which tops out at $25,000. The interest rates and payment plans typically are affordable, and the loans are designed to help provide funding for people who don't have enough equity to qualify for a standard home equity loan. Many basement projects would qualify for this type of loan, but check with a local Title I lender to make sure. Take the project details with you to meet with the lender, including renderings from your contractor if possible.

Contractor Financing

Your contractor might offer financing, allowing you to pay him in several payments over an agreed-upon time frame. Most require a deposit to begin work, then the contractor provides you with a detailed invoice several times over the course of the renovation. Depending on the terms, you might pay the full invoice each time, or you might pay a percentage and complete the rest of the payments over short period of time, such as two months. This option only works if you have the means to pay off a large renovation project quickly. It's best not to pay a contractor up front for work that hasn't been completed to make sure the work is completed to your satisfaction before parting with your money. This makes this choice an ideal alternative to paying cash, if you can afford it.


About the Author

Based outside Atlanta, Ga., Shala Munroe has been writing and copy editing since 1995. Beginning her career at newspapers such as the "Marietta Daily Journal" and the "Atlanta Business Chronicle," she most recently worked in communications and management for several nonprofit organizations before purchasing a flower shop in 2006. She earned a BA in communications from Jacksonville State University.

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