Did you know that renovating a home costs around $50,000? Even if you contribute $100 a month to a savings account, it will take over 40 years to accumulate enough money to tackle your home renovation project.
This reality pushes many homeowners to explore different financing options to bring their dream home improvements to life sooner rather than later. Various funding choices are available, including home equity loans, personal loans, credit cards, and government-backed loans, each with its own benefits and considerations. You can also tap into your home’s equity to borrow money.
Below, we’ll explain the best options for financing renovations so you can make a more informed decision on how to pay for home improvements wisely.
Experts recommend saving 1% to 4% of your home’s value each year to pay for necessary home maintenance and repair projects, such as burst pipes or AC repairs. For example, if you have a $500,000 home, you should have about $5,000 to $20,000 socked away in savings for these types of emergency home repairs.
Other times, you might want to tackle “nice-to-have” home projects, such as expansions or kitchen upgrades. No matter your project type, it’s important to budget appropriately.
Home renovation costs can fluctuate based on several factors, including:
Consider the following estimated cost range for home renovations:
| Renovation Area | Estimated Cost Range |
| Pool | $28,000–$100,000 |
| Window | $275–$4,500 per window |
| Landscape | $4–$12 per square foot |
| Kitchen Remodel | $20,000–$115,000 |
| Bathroom Remodel | $2,500–$20,000 |
| HVAC | $5,000–$12,500 |
| Roof | $4–$40 per square foot |
| Living Room | $1,500–$10,000 |
| Exterior | $6,000–$20,000 |
| Basement | $7–$25 per square foot |
| Bedroom | $1,500–$10,000 |
| Attic | $4,500–$70,000 |
| Patio | $2,000–$30,000 |
| Plumbing repairs | $350–$5,200 |
| Electrical upgrades | $1,500–$10,000 |
| New Garage | $11,000–$62,000 |
Understanding your options for financing home renovations can help you pay for home renovations and bring your dream project to life. If traditional renovation loans aren’t the right fit, there are several other avenues you can explore for financing home improvements. Read on to explore the best way to finance home improvements and alternative renovation financing options to upgrade your home.
If the value of your home has increased since you bought it, lenders let you borrow up to 80% of the equity. You have the following options for leveraging your home equity to pay for home improvements.
Best if: You want more flexibility to borrow what you need and are willing to use your home as collateral
A HELOC also taps into the equity in your home but works like a revolving line of credit that allows you to pull money from your equity when you need it. With a HELOC, you can borrow up to 85% of your home’s current value, less any remaining mortgage balance. This is one of the best ways to finance home improvements because the HELOC provides a substantial amount of money, making it suitable for both small upgrades and large-scale renovations.
Most HELOCs allow you to “draw” from the line of credit for 10 years, during which you’ll make interest payments only on what you borrow. Repayment terms typically last up to 20 years.
Keep in mind, however, that even though interest rates on HELOCs are usually lower than those on unsecured loans, these rates are variable, which means they can change based on market conditions. When your rate changes, so does your payment.
Best if: You have a lot of equity in your home and want to receive the funds as a lump sum
Home equity loans let you borrow against the equity you’ve built up in your homes — that is, your home’s current market value minus the amount you still owe on the mortgage. You can typically borrow up to $750,000 or 90% of the home’s value minus the remaining mortgage amount, providing significant capital for large-scale renovations.
The only difference is that you’ll receive the funds in a lump sum and repay it back over a term of 30 years or less. This means you must be comfortable budgeting and managing a chunk of cash.
Home equity loans may come with more favorable interest rates — around 8% to 11% — and the rates are fixed. For some, these rates are lower than credit cards and personal loans.
Best if: You can snag a lower mortgage rate than the one you currently have and you plan to stay in your home long-term
A cash-out refinance replaces your current mortgage with a larger one. You’ll receive the difference in the balance in cash, which you can use to fund your renovation. Ideally, a cash-out refinance has a lower interest rate than your current home loan because it can lower your monthly mortgage payment.
Plus, this financing method ensures you don’t add an additional monthly payment to your budget in the form of a personal loan or credit card bill.
If you don’t have equity in your home, or you would prefer not to use it to borrow money for home improvements, you can increase your living space and boost property values using alternative financing options.
Best if: You have good credit and need money quickly.
Personal loans can be an excellent option for accessing money for emergency repairs and you would prefer not to borrow against your home’s equity. Many lenders can fund a personal loan within a week with borrowing limits up to $100,000.
Repayment terms on most personal loans are between two to seven years, and the interest rates are typically higher than home equity options (6% to 36%, depending on your credit score and financial history). A higher credit score often translates to lower interest rates, making the loan more affordable over its term.
Unsecured personal loans don’t use your house or personal property as collateral, which helps speed up the funding time. And the fixed interest rate ensures your monthly payments remain the same throughout the loan term so you can budget better.
Best if: You have good credit and a smaller renovation project to fund
For smaller improvement projects, credit cards with 0% or introductory APR offers can be a reasonable option. These special rates allow you to pay off your renovation interest-free for a set period, typically 12 to 18 months. You’ll need good or excellent credit to qualify for these cards, which you should consider only if you plan to pay off the bill quickly.
You can use your credit card to pay for things immediately upon approval. And many cards offer rewards for using them in the form of points and cashback based on your spending. But interest rates on credit cards are high — usually hovering around 20% to 25% — which could greatly increase your balance owed if you get behind on payments.
Also, credit limits vary based on your credit history, with many homeowners having access to around $25,000. This amount may be sufficient for smaller projects but could be limiting for more extensive renovations.
Best if: You have less expensive projects that can be worked on over time and don’t require full payment upfront
Covering home improvements with cash is one of the best ways to pay for home improvements because it ensures you won’t accrue additional debt or interest payments. You might opt to pay in cash to complete a smaller DIY project or fast repair, such as adding an outdoor garden in the spring or refreshing your interior lighting.
This may not work for emergency repairs or renovations, and this financing method might extend your project timeline. But breaking up payments over the course of the construction helps fit the project into your budget.
Best if: You want to work with your contractor to streamline the funding process
Another option for fast home improvement funding is to work with contractors that offer financing directly to their clients. This approach involves working with contractors who offer this service and applying for financing through their website. You’ll get a quote, secure financing, and start your project through one seamless interaction.
Here’s how it works:
If approved, the contractor can begin work immediately, and you’ll pay the lender in flexible installments.
Government loans typically have lower interest rates and better terms, which can provide much needed savings. But eligibility is based on need and location, so you’ll need to explore qualifying criteria to determine if these financing options are for you.
Best if: You have significant renovations planned and less-than-stellar credit
Backed by the Federal Housing Administration, FHA 203(k) loans allow you to finance both the purchase of a house and renovations through a single mortgage. Eligibility for a FHA 203(k) loan may even extend to homebuyers with lower credit scores.
You can choose between a 15- or 30-year term, and both fixed and adjustable rate options are available, providing flexibility according to your financial planning. You can also borrow a larger sum of money, but loan limits vary by location. The down payment requirement for these loans is relatively low, ranging from 3.5% to 10%, depending on your credit history.
FHA 203(k)-approved renovations include:
Improvements paid for with a 203(k) loan must adhere to specific guidelines such as structural alterations, modernizations that enhance function, and improvements that eliminate health and safety hazards. A licensed contractor must also complete the renovations, and you may be required to appoint an FHA-approved consultant if you choose the standard loan option.
Best if: Veterans and military members who don’t have a VA mortgage and want to keep borrowing costs down to one loan
VA Renovation Loans roll the cost of repairs into a VA mortgage or cash-out refinance, unlocking funds to renovate a home you just bought. Most VA renovation loans are used to purchase fixer uppers and restore them to proper function. However, these loans can be hard to come by, and the loan terms are a bit specific.
A VA-approved contractor can only work on specific projects, for example, and all upgrades must go through an appraisal and inspection upon completion.
Best if: You bought a home that needs repairs and you wish to combine the purchase price, home repairs, and remodeling costs into one loan amount
Backed by the Department of Agriculture, these USDA renovation loans allow qualified buyers to purchase a home you’ll live in full-time and fix it up with no money down. USDA limited loans allow you to borrow up to $35,000 to repair non-structural elements, and USDA standard loans allow you to borrow more than that if structural repairs are needed.
These loans require borrowers to roll in a contingency fund to the borrowing amount, usually a few thousand dollars, to cover unexpected costs. To qualify, you must meet certain income limits, have a credit score of at least 620, and purchase a USDA-eligible home.
If securing financing for home remodels through traditional banks and lenders is not an option, you can leverage a few creative financing options to fund your fix-up endeavors.
Through crowdfunding platforms (think: GoFundMe and WhyDonate) homeowners can pool their resources with others to raise money for home improvements. Here, you’d create a donate story and allow others to donate to your cause via the crowdsourcing site. Just be sure to compare costs across platforms. Some of these sites take a portion of your funds as payment, sometimes as much as 5% or 6%, which could eat into your reno budget.
Online peer-to-peer lending platforms help individuals access home improvement funds from other individuals instead of financial institutions. Peer-to-peer loans carry lower interest rates than credit cards, and applying and accessing the funds is earlier than traditional loans. However, fees can be higher compared to personal loans. Popular peer-to-peer platforms to explore as a way to fund home improvements include Prosper and Kiva.
Many states and local communities offer grants for home improvements. These grants are specific to your location and are often for specific projects, such as window grants or roof replacements. Browse your local state website to browse a list of grant opportunities available. But note that each grant will have unique eligibility and application requirements.
Before you take even one hammer to your walls, take a moment to assess your current situation and how you’ll pay for your projects both now and in the future. Here are a few things to consider before starting a home renovation:
Not all financing options will fit your goals and financial situation. When you’re ready to explore ways to pay for home renovations, consider your costs, project scope, and repayment terms to ensure you choose the right option
Financing a home project responsibly requires careful planning and truthful conversations. Talk with your family to choose a path you feel comfortable staying on for a few years while you repay the loan. From tapping into your home equity to exploring innovative contractor financing, each option offers unique advantages tailored to your financial circumstances and project needs. Compare your options carefully to get the best terms.
We’ve answered some commonly asked questions about home improvement financing below to help you plan better.
Home improvement loans may be a good idea when used toward renovations and upgrades that increase the value of your home and improve its livability. They’re best used to fund projects requiring between $15,000 and $100,000, as lenders typically won’t give you more than that. Ensure you choose a loan with reasonable monthly payments that fit comfortably into your budget.
Yes, you can get a home improvement loan with bad credit, but the interest rates will probably be higher. You may also need a co-signer or collateral to get approved for the loan at a better rate. Prequalify with multiple lenders, as some may consider aspects beyond your credit score when reviewing your loan application.
You can finance home renovations even if you haven’t built up equity in your home or would prefer not to put your home up as collateral for the loan. Financing options include government-backed loans, personal loans, credit cards, and private financing through contractors and home improvement companies. Loan terms will vary by loan type, so it’s important to shop around with lenders to learn about amounts, rates, eligibility, and repayment terms available to you.
The 30% rule of home renovation advises that the total renovation costs should not exceed one-third of the home’s purchase price. This helps homeowners improve their living spaces without overspending and exceeding their potential property value. Use this rule to prioritize areas in your home to upgrade and increase your return on investment later.
