People who dream of renovating a home -- or redoing just the kitchen or bathroom -- might wonder how other homeowners finance a home remodel that can cost tens or hundreds of thousands of dollars.
Paying for a home remodel sometimes involves a new loan, but more often, homeowners have cash on hand from other sources, says Steve Klitsch, owner of Creative Concepts Remodeling, a home remodeling company in Germantown, Md.
Klitsch says the majority of his customers last year used cash from personal savings to pay for remodeling projects, though two families received substantial gifts from their parents and two others refinanced their mortgage and cashed out some of their equity to finance a home remodel.
People who spent their own money to finance a home remodel typically were more frugal and asked more questions about labor, materials and warranties than those who received gifts or refinanced their mortgages, Klitsch says.
Among those who had saved up were dual-income couples whose children had recently completed college, ending years of education expenses.
"There's a relationship between working couples, life partners, who have children who've completed college and within a very short period after that, they say, 'Wow! Look at the money we have!' They're not paying tuition, not buying books. They suddenly have thousands or tens of thousands of disposable income they can put into their home," Klitsch says.
A late-2012 survey by the National Association of the Remodeling Industry, or NARI, in Des Plaines, Ill., also suggests many remodeling customers have adequate savings.
The survey found 96 percent of the 518 NARI member contractors who completed the questionnaire had accepted checks as a form of payment. Approximately one-quarter had accepted credit cards, home equity loans, bank home improvement loans or cash. Only 6 percent had arranged financing for their customers.