Remodeling your home is an exciting way to enhance its functionality, increase its value, or make it better suited to your lifestyle. However, financing a home remodel can be a challenge, especially when costs add up quickly. Luckily, there are numerous options available to fund your project. Here are the 12 best ways to finance a home remodel, each tailored to different financial needs and goals.
Tips for Choosing the Right Financing Option
- Evaluate Your Budget: Understand the scope and estimated cost of your remodeling project before selecting a financing option.
- Compare Interest Rates: Lower interest rates can save thousands of dollars over the life of a loan, so shop around for the best terms.
- Consider Tax Benefits: Certain loans, like home equity loans or mortgages, may offer tax-deductible interest if used for home improvements.
- Assess Your Credit: Your credit score impacts loan eligibility and interest rates. Improving your credit before applying can increase your options. Ask about zero interest home improvement loans.
- Plan for Emergencies: Keep an emergency fund intact to cover unexpected remodeling costs or financial challenges.
Financing a home remodel in 2025 is more accessible than ever, with a variety of options to suit different budgets and project sizes. Whether you choose to tap into savings, leverage home equity, or explore government-backed programs, each option comes with its own benefits and considerations. By carefully evaluating your needs and researching financing solutions, you can make informed decisions and turn your remodeling dreams into reality. Always consult with financial experts to ensure the chosen method aligns with your overall financial goals.
Anyone who owns their home probably has a list of home improvements they want to do. Whether it is renovate the kitchen, add a bathroom or update the A/C system, most of us have plenty of things on our wish list.
What often stands in the way is money, naturally. Many home improvements cost thousands of dollars. But there is good news: There are many realistic ways to come up with the money for a home improvement project. With easier credit standards this year, fixing up your home the way you want might just be easier than ever.
However, experts advise you to keep a few things in mind before you even consider using money or getting a loan to do a home renovation. They say the biggest error people make is they finance home improvements for a period that is longer than improvements will last. If you take out a loan for 20 years to pay off a home improvement, you may still be paying mostly interest by the time the renovation needs to be replaced. Fortunately, in today’s economic environment there are a handful of home improvement loan programs to consider.
Ask lenders about the new home remodeling loans that are offering borrowers more money.
12 Best Ways to Finance a Home Remodel and Repairs
Below are the top options for paying for your home modeling and repairs:
#1 Use Your Own Cash (Savings)
If you can, it is best to pay cash for your home improvements. You do not have to worry about additional monthly payments and you will not affect the equity on your property. If you can afford to wait, it is always best to save up the money for a few years and pay for the project with all cash. If this is hard, consider breaking down your home improvements into manageable chunks. For example, you can break down the kitchen upgrade to several chunks, such as flooring, counters, cabinets and appliances. As you get the cash, you can move on to the next stage of the project.
Using your savings is the most straightforward and cost-effective way to finance a home remodel. By tapping into your savings, you avoid interest payments and debt accumulation. This option works well for small to medium projects, as long as it doesn’t deplete your emergency fund.
#2 Do a Cash Out Refinance
A cash-out refinance replaces your current mortgage with a larger one and provides the difference in cash. This option works well if you have substantial home equity and can secure a lower interest rate than your existing mortgage. It’s a popular choice for extensive remodels, like a full-home makeover.
If you do not have the cash to do the home improvements you want, doing a refinance for cash out may be the way to go. Mortgage interest rates in 2018 are very low in the range of 4%. Even though the economy is taking off and the Fed has raised rates and plans to do so again soon, you may be able to score a lower interest rate on a refinance than your current rate.
It is important, however, to make sure you are not financing your home improvements for a longer period than the improvements will last. If you have to finance your kitchen for 25 years and have to redo it in 15 years, this is not a good use of your equity.
#3 Get a Home Equity Line of Credit (HELOC)
A HELOC works like a credit card, allowing you to borrow money as needed up to a set limit. With variable interest rates, HELOCs are excellent for ongoing or phased remodeling projects, as you only pay interest on the amount you use.
If you do not want to refinance your first mortgage, consider a home equity line of credit or HELOC. With this line of credit, you will draw money out of your property as it is needed and pay it back as you like. There are minimum monthly payments that will eventually increase after the draw period ends. This is the time in which you may take out cash, which is usually five or 10 years. After that, you must start paying back principal as well.
You can typically take out up to 80% or 85% of the home’s value, minus what you owe on the first mortgage.
If you are unable at any point to pay that loan, you could lose your home. Thus, make certain that you will have sufficient income in several years to continue to make those loan payments.
HELOCs have a variable interest rate after the initial fixed period of a few months or years. They can and often do go up after that. The interest rate initially is lower than a home equity loan, and therefore most people choose the line of credit option over a home equity loan.
#4 Look at Home Equity Loans
A home equity loan allows you to borrow against the equity in your home. You receive a lump sum with a fixed interest rate and repayment term. This option is ideal for larger projects with predictable costs, such as a kitchen renovation or adding a new room.
A home equity loan is also based upon your home’s equity. But in this loan, you borrow your equity with a fixed payment schedule that does not change. It is common to have a 15-year loan, but a five or 30-year term is also possible. A home equity loan carries a higher rate than a HELOC, but you may prefer it if you feel nervous about an adjustable interest rate. You may see HELOCs in the range of 7 to 9% these days, and home equity loans about one point higher. If you have less than perfect credit, consider a home equity loan with fair credit.
The major advantage with a renovation home equity loan is you will never have to worry about payment shock; you know exactly what the payment will be for the entire loan term.
#5 FHA 203k Loan
The Federal Housing Administration allows you to do a 203k-FHA loan which can finance up to $30,000 or $35,000 of home repairs. It is not based upon the equity in the home. Note that you will have to carry mortgage insurance for the life of this loan.
Government-backed loans, such as FHA 203(k) loans or Title I Property Improvement Loans, are designed specifically for home improvement projects. These loans are ideal for homeowners with lower credit scores or those looking to renovate homes in designated areas. They often come with lower interest rates and flexible repayment terms.
#6 Credit Cards
For small-scale remodels, such as replacing appliances or painting, credit cards can be a viable option. Many cards offer promotional 0% interest rates for a limited period, allowing you to finance your project without interest if paid off during the promotional window. Be cautious of high rates after the promotional period ends.\
It is possible to cover smaller renovations with your credit cards, but it is not a good idea to finance large projects over years with high interest credit. Some home owners choose to buy materials with credit cards because they want the rewards points.
7. Personal Loans
Personal loans are an unsecured option for financing a remodel, meaning they don’t require collateral. They are quick to obtain, often with fixed interest rates and terms. However, the interest rates may be higher than secured loans, making them more suitable for smaller projects.
8. Contractor Financing
Many contractors offer in-house financing options or partnerships with lenders. This can simplify the process by bundling financing with the remodeling contract. Be sure to compare the terms and interest rates with other financing options to ensure you’re getting a fair deal.
9. Energy-Efficient Financing
If your remodel involves upgrading to energy-efficient systems or appliances, look into specialized financing programs like the Property Assessed Clean Energy (PACE) program. These programs often provide lower interest rates and may be repaid through property taxes, making them a good choice for green remodeling projects.
10. Savings from a Retirement Account
Some retirement accounts, such as 401(k) plans, allow you to borrow against your balance. While this can be a quick source of funds, it should be approached with caution, as it could impact your long-term retirement savings and carry penalties or taxes if not repaid promptly.
11. Borrowing from Family or Friends
Borrowing from family or friends can provide low-cost or interest-free financing for a remodel. This option requires clear communication and written agreements to avoid misunderstandings or strained relationships. Treat it as you would any formal loan arrangement, with specific terms for repayment.
12. Refinancing or Selling Investments
If you have a portfolio of stocks, bonds, or other investments, selling or refinancing these assets can provide the funds needed for a remodel. Consider the potential tax implications and market timing before liquidating assets to ensure this option aligns with your financial goals.
Takeaway on Best Ways to Finance a Home Remodel
Prequalifying with various lenders is essential to secure favorable terms when exploring diverse loan options for financing your upcoming home improvement project. Financing such a project demands thorough planning, and homeowners should thoroughly evaluate all available financing options before making a commitment. Ideally, saving up and covering the costs out-of-pocket is the preferred method for funding a home improvement project, as it helps avoid accumulating significant debt.
If you choose wisely, home renovations can pay you back handsomely when you sell the home. Consider using one of the above options to fund your home renovation project today.
References: Retrieved from, Top 11 Ways Homeowners Can Fund Home Improvements. (2015).
About RefiGuide
Bryan Dornan is a financial journalist and currently serves as Chief Editor of RefiGuide.org. Bryan has founded several mortgage and marketing companies and has worked as a loan officer and mortgage broker in the industry for over 25 years and has a wealth of experience in providing mortgage clients with the highest level of service in the industry. Bryan's continual focus is to promote affordable home-ownership to consumers like you across the United States. He also writes for RealtyTimes, Patch, Buzzfeed, Medium and other national publications. Find him on Twitter, Muckrack, and Linkedin
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