Jun 20, 2023

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If you are like most homeowners, you have a list of home improvement projects to tackle. Some are small and low-cost, like touching up trim around the front door, changing a light fixture, or installing new cabinet hardware.

Other projects are bigger and take more time and money to complete. If you want to replace a deck or renovate a bathroom, for example, you will want to start with a good idea of the project costs and how to pay for it.

Before you jump into any project, make sure you are clear about your goals. Are you prepping the home for sale in the next year or two? Or are you upgrading for your own enjoyment?

Once you know your intentions, you will be ready to make a budget, plan a course of action, and take smart steps to pay for your home improvement project.

Table of Contents

  1. Prioritize your home improvement list
  2. Know your project to estimate budgets
  3. Find the best way to finance home improvements
  4. Plan for the unexpected

1. Prioritize your home improvement list

As you plan to upgrade your home, it is important to separate “wants” from “needs.”

Home improvement “wants” can be cosmetic, functional, or both. These are the projects you dream about to enhance your family’s time at home or prepare for a sale. But they are not necessary to keep the house in good working order.

“Needs” are repairs and upgrades you will have to schedule sooner or later to avoid more costly damage in the future.

It’s fine to spend money on a new look for your kitchen or to convert the garage into a home gym—but not until you have fixed that sagging deck or replaced your aging roof.

Your home improvement goals will also tell you which projects to tackle first. If you plan to sell your home in the next few years, it makes sense to focus on maintenance concerns. Deal with leaks or structural issues to ensure the house is in good working order and will pass inspection. Then move on to upgrades that are likely to appeal to future buyers.

2. Know your project to estimate budgets

Once you know which project you will tackle first, it’s time to think about the details and get estimates.

The cost estimates for your home upgrade will vary depending on your starting point, what you hope to achieve, and how much of the work (if any) you expect to do yourself (DIY).

Kitchen upgrades

A kitchen remodel could involve new cabinetry and appliances, which come with hefty price tags. A different layout that calls for changes to electrical and plumbing connections will also add to the total cost.

But you could choose to take a less expensive route and still get impressive results. One popular cost-saver is to reface or repaint existing cabinets instead of installing new ones. You might also replace your appliance fronts for a fraction of the cost compared with buying new ones. A dramatic new countertop or backsplash can also modernize the look of your kitchen.

Bathroom remodels

A modern spa-style bathroom could be an important draw for future buyers. And you can stretch your dollars if you tweak your approach. Consider a free-standing vanity purchased from stock instead of custom cabinetry. Keep the tub if it’s in good condition. But update it with sleek new tile and fixtures.

Other home improvements

Finishing your basement is a great way to add functional living space—and value—to your home. Keep costs in check by doing some of the work yourself, like painting. Area rugs over finished concrete are a cost-effective alternative to new floors.

For any project, understand your options at different price points and decide what makes sense for your situation. A reputable contractor can provide estimates and helpful input.

While few home improvements will return all of your investment when it is time to sell, many online resources can help you set realistic expectations, which may also influence your decisions.

3. Find the best way to finance home improvements

Saving money to pay for home improvements in cash is always a good option. But when you need to get to work right away—to fix a leaky roof that has already caused damage or make room for a new family member—existing savings may fall short.

If that is the case, the next-best option is to commit as much cash as you can and explore options to finance the balance of the project.

Paying for small home improvement projects

You may choose to use a credit card to pay for a smaller project, if you will be able to pay your balance quickly. One solution could be a card that is interest-free for an introductory period and offers cash-back rewards. The drawback to this approach is that if you can’t pay the balance in full before the introductory period ends, you could end up with a high interest rate. Your balance would also grow if you use this card for anything beyond your remodel. The result will be owing and paying more than you anticipated.

Many homeowners also turn to a home improvement loan to pay for part or all of their home improvement project. A home improvement loan is a personal loan you use for home renovations. A home improvement loan is an unsecured loan, so you don’t need to use your house as collateral. Your ability to qualify, and the interest rate you receive, will depend on your credit worthiness.

For projects that cost more, applying for a personal loan to pay for home improvements might make sense. You can compare loan options with an amount and flexible terms to suit your budget and project needs. The application process can be fast and funds may be sent quickly.

Unlike credit card financing, which comes with a variable interest rate, a personal loan may offer a fixed rate and set regular monthly payment. This means that even if your construction costs go over budget, or interest rates rise, the interest you pay on your loan will remain the same.

For example, once you’ve locked in a fixed rate with a Discover® personal loan, it won’t increase over the life of your loan.

Financing larger home renovations

For a larger, more expensive project, you might consider applying for a home equity loan or home equity line of credit (HELOC.) For these types of financing, your house secures the loan, which allows the lender to charge a lower interest rate than for an unsecured loan. Loan interest may be tax deductible.

Also known as a second mortgage, a home equity loan provides a lump sum at a fixed rate. You repay this loan over a number of years with set monthly payments.

A HELOC provides you with access to funds you can tap as needed (up to your borrowing limit) to pay for different phases of your home improvement project. This flexibility makes a HELOC a potentially good solution for major projects completed over an extended period. But note that most HELOCs carry a variable interest rate, so borrowing will cost you more if rates rise.

4. Plan for the unexpected

If you have funding lined up and your project is ready to launch—congratulations!

As your new and improved space starts to take shape, make sure you have a way to keep track of all the details.

File contractor invoices and note the cost of materials you purchase directly. You will want to spot any discrepancies early so you can discuss them with contractors and put a hold on unexpected spending before it gets out of control.

Even a minor home improvement project can disrupt daily routines, creating extra stress for everyone involved. If you are prepared for setbacks like delayed deliveries, changes in product availability, or contractor staffing issues, you will be less frustrated if the plan has to change.

And when the work is complete and the last bit of sawdust is swept away, you will find new joy spending time in your improved home.

Want to learn more about home improvement financing?

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