Did you know that it costs around $50,000 to renovate a home? Even if you contribute $100 a month to a savings account, it would take you 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 financing choices are available, including home equity loans, personal loans, credit cards, and government-backed loans, each with its own set of benefits and considerations.
As you read on, we will guide you through each financing option, helping you make informed decisions on how to pay for home renovations wisely.
Home renovation costs can fluctuate based on more than just the room or area of the house that is being upgraded. Several factors go into determining how much you’ll pay for home renos, including:
Before you start tearing down, consider the following estimated cost range for home renovations:
Renovation Area | Estimated Cost Range |
Pool | $28,000 to $55,000 |
Window | $400 to $1,000 per window |
Landscape | $4,500 – $17,000 for 1,000 sq. ft. |
Kitchen Remodel | $10,000 to $70,000 |
Bathroom Remodel | $3,000 to $25,000 |
HVAC | $5,000 to $12,500 |
Roof | $5,000 to $30,000 |
Living Room | $1,500 to $10,000 |
Exterior | $6,000 to $20,000 |
Basement | $12,000 to $75,000 |
Bedroom | $1,500 to $10,000 |
Attic | $4,500 to $70,000 |
Patio | $2,000 to $30,000 |
Plumbing | $350 to $2,000 |
Electrical | $1,500 to $10,000 |
Garage | $1,500 to $50,000 |
A renovation loan is a financial tool designed for homeowners who want to make improvements or repairs to their property. Renovation loans are typically unsecured, meaning they don’t require your home as collateral. This can be a safer option, especially if you’re cautious about putting your house on the line.
Whether you’re looking to enhance the aesthetics of your home, improve safety features, increase functionality, or even expand your living space, a home renovation loan can provide the necessary funds.
Understanding your options for financing home renovations can help you make better financial decisions and bring your dream project to life. Read on to explore the various loan types that could help turn your renovation plans into reality.
Personal loans can be an excellent option if you prefer a quicker funding solution. These loans have borrowing limits of up to $100,000 and have repayment terms ranging from two to seven years.
The interest rates on personal loans vary from 6% to 36%, depending largely on your creditworthiness and financial history. A higher credit score often translates to lower interest rates, making the loan more affordable over its term.
They are generally unsecured, reducing the risk of leveraging your property. One significant benefit of personal loans is the speed of processing. If you are approved, you can often receive funds within days. Additionally, the fixed interest rate ensures that your monthly payments remain consistent throughout the loan term, making financial planning more predictable.
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. There are two types of FHA 203(k) loans: the limited and the standard.
The limited option is suitable for projects that require less than $35,000 in repairs, while the standard option is meant for more extensive renovations exceeding $35,000. These renovations must adhere to specific guidelines such as structural alterations, modernizations that enhance function, and improvements that eliminate health and safety hazards.
Other acceptable renovations under FHA 203(k) loans include:
The down payment requirement for these loans is relatively low, ranging from 3.5% to 10%, depending on your credit history.
If you’re looking for one of the best ways for quick and hassle-free home improvement funding, consider working with contractors that offer home improvement consumer financing directly to their clients. This approach involves working with contractors who offer financing directly to homeowners through their website.
By applying for financing with the contractor doing the work, you can get a quote, secure financing, and start your project through one seamless interaction. Here’s how it works:
If traditional renovation loans aren’t the right fit, there are several other avenues you can explore for financing home improvements. Here are some alternatives that can stretch your dollar further and bring your dream home to life:
Credit cards were the most popular payment method for home renovations, with 37% of homeowners using them. This popularity is partly due to the availability of 0% or introductory APR offers.
These special rates allow you to finance your renovation interest-free for a set period, typically 12 to 18 months. This period allows you to pay off the expense without accruing interest and is especially convenient for small-scale renovations that you anticipate paying off quickly.
Additionally, credit cards can offer immediate financial access. Upon approval, you can begin using your credit line right away. The benefits of using credit cards extend to rewards as well. Many cards offer points and cashback based on your spending.
However, it’s important to be cautious about the high interest rates. The average rate can hover around 25%, making long-term financing costly if the balance isn’t paid off quickly.
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.
Supported by the U.S. Department of Housing and Urban Development, HUD Title 1 loans are intended for renovations that enhance a home’s livability and utility. This could include projects like fixing a roof, installing new windows, or updating an HVAC system – any improvements that make the home more comfortable and functional.
Homeowners can borrow up to $25,000 for single-family homes to cover renovation costs. For renovations costing over $7,500, the loan must be secured. The repayment terms for HUD Title 1 loans extend up to 20 years.
To qualify for a HUD Title 1 loan, both the homeowner and the renovation project must meet specific eligibility requirements. The homeowner needs to have a good credit score and a stable income. The renovation projects must be approved under the HUD guidelines, which are primarily focused on ensuring the work contributes to the home’s safety and functionality.
Home equity loans allow homeowners to borrow against the equity they’ve built up in their homes – that is, the difference between their home’s current market value and the amount they 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.
Home equity loans are secured by your property and may come with more favorable interest rates – around 8% to 11%. Interest rates for home equity loans are fixed, which means your monthly payments remain consistent throughout the term of the loan.
Repayment terms can extend up to 30 years, helping keep the monthly payments lower. However, the total cost paid in interest over time will be higher.
A HELOC is a financing choice for homeowners who wish to fund renovations by tapping into the equity of their home. A HELOC allows you to use this equity as a flexible credit line, much like a credit card, but with your home serving as collateral.
With a HELOC, you can borrow up to 85% of your home’s current value, less any remaining mortgage balance. This setup provides a substantial amount of money, making it suitable for both small upgrades and large-scale renovations.
During the draw period, typically up to 10 years, you have the flexibility to borrow money as needed, which is particularly convenient for ongoing projects. You only pay interest on the amount you withdraw. Repayment terms typically last up to 20 years.
The interest rates on HELOCs are usually lower than those on unsecured loans due to the security your home equity provides. However, these rates are variable, which means they can change based on market conditions.
Navigating the diverse landscape of financing options can significantly simplify the journey of renovating your home. From tapping into your home equity to exploring innovative contractor financing, each option offers unique advantages tailored to your financial circumstances and project needs.