It was a dark and stormy night. The lights flickered once, twice and then BOOM! Everything went dark. As it turns out, it’s because a tree fell on your house and pulled down the weatherhead and, accordingly, the main power feed to your home.
That’s gonna hurt, right in the pocketbook. Although your insurance will almost certainly cover some of the cost, you’re still going to have to come up with the deductible and other related expenses (like meals) until it’s sorted. How’s that rainy day fund?
If it’s not awesome, you’re not alone. According to the Federal Reserve’s most recent “Report on the Economic Well-Being of US Households,” 44 percent of Americans can’t cover a $400 emergency without borrowing from elsewhere. While that’s a serious problem for the economy, we’re talking about you right now. One problem at a time.
Show Me The Money! Sources to Check for Emergency Funds
You’ve exhausted your couch cushions, checked all the pay phones for quarters (what’s a pay phone? Nevermind!), done some odd jobs for the neighbors and you’re still nowhere near having the cash to fix the gaping non-electrified hole in your life. This is getting unbearable and your boss is about to send you outside to give you a garden hose shower.
Something has to be done! But what? You can’t get blood from a stone, as they say. But sometimes you can get money from, you know, people. As it turns out, there are procedures in place for loans and grants that can help you rebuild and save you from the cold, icy experience of being sprayed down like livestock.
Loans are the Most Likely Source of Funding
Look, this isn’t going to be pretty, but it will get you by. You’re probably going to have to borrow from someone, somewhere. There are several different sources that will provide you with funds to help with problems like major home repairs, these are listed below in order from overall best option to the least. But even the least among these options is better than nothing.
Home equity loans. There are two types of home equity loans available, the original home equity loan and a loan that’s more like a credit line, called a HELOC. Both have fairly good interest rates as of the writing of this blog, assuming you have decent credit, and can be secured pretty easily. The one caveat is that you generally can’t tap more than 80 percent of your home’s total equity, so if your mortgage is already taking up 75 percent of that, you may not have enough equity left to fix the weatherhead. Your home will act as security for the home equity loan, just like with your mortgage, so make sure you can cover it every month.
If you can get a home equity loan of either type, they’ll have the longest terms and thus the smallest payments. As long as yours doesn’t have a prepayment penalty, you can always pay extra, but you’ll never be in a position where you’re scrambling to find the money to make a stretch payment. Talk to your credit union or the bank where you have your checking account or mortgage to get started with one of these loans.
Personal loans. Personal loans can be difficult to qualify for because there’s not generally any security involved, but if you can get one, they’ll do in a pinch. Since there isn’t any collateral, they process much faster than a home equity loan, getting that power turned back on faster. The downside is that you’re likely going to be paying a much higher rate than you would with a secured form of credit and the term will be much shorter, but you also don’t risk losing your home if you miss a payment.
401(k) loan. Oh ye of little faith, you thought that 401(k) was never going to do anything for you, didn’t you? Today it’s going to prove you wrong. Depending on how much of your funds are vested and how your specific 401(k) is set up, you can likely either take a loan out against your retirement fund or take a tax-free withdrawal based on a hardship exemption (consult with your financial advisor first).
Now, keep in mind that doing this means that you’re literally stealing from your future in order to have cold beer in the fridge. But, sometimes you have to do what you have to do. Make it up later by increasing your contribution by a percent or two, then maybe you won’t be sitting around eating pork and beans from a can when you’re in your 70s while reminding yourself that it was really important that you caught “American Idol” the week after the big storm.
Borrowing from family. Hey, don’t skip this one. Read all the way through. It’s no fun to ask family for money, but sometimes, you’re caught between a rock and hard spot. Or your bacon pops out of the frying pan into the fire. Or something. When things are rough, sometimes you have to go back to your people and grovel. You can probably think of a long list of cons for this one, but the pros include having someone who probably won’t foreclose and also your family member gets some interest, so that’s nice for them.
If you do borrow from family or friends who are like family, make sure to draw up a formal loan agreement. You can find something pretty basic online, you just need to make sure it includes the payment amount, the payment due date, the number of payments, the interest rate and the total amount borrowed so that everyone’s covered. Even though your parents would never sue you for the amount due, that loan’s a little more real when the pen goes to paper.
What About Free Grant Money That’s Free?
There are some grant programs out there, but they are very few and far between. Primarily, they go to people who are elderly, very impoverished and live in rural areas, but if there’s a grant program in your area, apply. It can’t hurt anything.
The biggest downside to grant money for a repair like yours is that they’re rarely in any hurry to get things done. Grants can be achingly slow, even if you’re approved right away. You probably can’t afford that kind of time investment. Just because it’s free doesn’t mean it’s not going to cost you a fortune.
One Last Stab: Service Provider Credit
Contractors across the country are stepping up their games and partnering with financial institutions to be able to offer you credit programs to help pay for those big and unexpected expenses. Just like doctors and veterinarians have teamed with Care Credit, there are specific partners for roofers, electricians and their kin. Not every contractor is taking advantage of these programs, nor does every construction expert have the staff or interest to even look into them, but it’s worth asking about.
A simple, “Hey, do you have any sort of credit program available?” can help you determine if you have to start selling excess organs on the black market to get the lights turned back on (don’t actually do that #NotADoctor). You might try calling a few different providers to see if you can find someone with a lender in place if you’re kind of out of options. You will very likely pay more for the service itself, since a contractor at that level will have more staff to pay, more overhead to cover and so forth, but it’s a trade-off. You pay for the additional customer support and you get back to life as you knew it before that dark and stormy night.
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