If you’re a homeowner, you most likely have a running list of home repairs, projects, and renovations you’d love to tackle. But that also means the question “how to finance home improvements” has come across your mind a few times.
Some projects are small and low-cost while others are bigger and take more time and money to complete. This means there are many options when it comes to home remodel financing. For smaller projects, you may use cash, credit cards, or personal & home improvement loans, and for bigger projects you may consider using home equity.
While we can’t decide what matters most to you, we can help you weigh your options and make decisions about how to finance the projects that mean the most.
Table of Contents
- Prioritize your home improvement list
- Define your home renovation project and estimate budgets
- Pick the best financing option for your home renovation: cash or borrowing?
- Financing small to medium-sized home improvement projects with credit, a personal loan, or home improvement loans
- Financing a larger renovation with your home equity
- Get to work, prepare for unexpected costs, and plan for repayment
1. Prioritize your home improvement list
Let’s start with that mental list of all the home improvement projects you’d love to get to someday. As you think about working on your home, it is important to separate “wants” from “needs.”
Home improvement “wants” can be cosmetic, functional, or both. These are the upgrades and renovation projects you dream about to enhance your family’s life, or home remodel projects you think would make the house more appealing in preparation for a sale. But they’re not necessary to keep the house in good working order.
This is when the real assessment of “needs” comes in. “Needs” are repairs or upgrades you will have to schedule sooner or later to avoid more costly damage in the future (and why prioritizing your home improvement list can be a crucial step in saving money in the long run). It’s fine to spend money on a new look for your kitchen or to convert the garage into a home gym—but probably not until you have fixed that sagging deck or replaced your aging roof.
Your long-term home improvement goals will also tell you which projects to tackle first.
For example, if you plan to sell your home in the next few years, it makes sense to focus on maintenance concerns. First, deal with leaks or structural issues to ensure the house is in good working order and will pass inspection. Then you can move on to upgrades that might appeal to future buyers.
But if you’re not planning on selling any time soon, you can move those “wants” up your list—as long as you’re still taking care of the most serious “needs” of course.
This prioritization will also be relevant when it comes to how you pay for a project, which we will dive deeper into later in this checklist. It’s important, however, to start thinking about these questions early on.
Do you want to take out financing—something like a home improvement loan or a home equity loan—for a cosmetic renovation? Probably not. Maybe that project gets paid for in cash from your savings or with existing credit. A much-needed repair could be worth tapping into your home equity. We’ll get into your financing options after our next step.
2. Define your home renovation project and estimate budgets
Once you decide which home improvement project to tackle, it’s time to think about the details of the work 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).
For example, a kitchen remodel could range from you refreshing old cabinets with a coat of paint paid for in cash, all the way to borrowing money so you can replace appliances or bring in labor to change your plumbing. A modern spa-style bathroom could be an important draw for future buyers—or just make your everyday life feel more luxurious. A full bathroom renovation can be expensive, and maybe you judge it to be worth taking out financing. Or maybe you decide to stretch your dollars by making small updates to tile or replacing one fixture rather than doing a full overhaul.
For any project, it’s important to 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 add value when it is time to sell, there are online resources that can help you set realistic expectations about what renovation will do to your home equity. Having all the information can help you make decisions about what you want to take on or how you want to approach a project.
Once again, these estimates will be key to the next step of your project: deciding how to finance your renovation.
3. Pick the best financing option for your home renovation: cash or borrowing?
Financing option | Best for: | Pro: | Key Consideration: |
|---|---|---|---|
Cash | Small projects | Won’t add to overall debt | You may not have enough cash for immediate needs and it may deplete your savings |
Credit Card | Small to medium projects
| Opportunity to take advantage of 0% interest promotions | Once promotion period ends, interest rates can be higher than a loan |
Home Improvement & Personal Loan | Medium to large projects
| No collateral, flexible repayment terms, fixed monthly payments | Will add to your overall debt, missed payments can affect credit score |
Home Equity Loan or Line of Credit | Large projects | Lower interest rates due to it being “secured” with collateral | Your house will be collateral |
Want to learn more about your credit score? How a Credit Score Works
On the other hand, if you think your credit score can deliver beneficial borrowing terms, you can use financing to your advantage. And the next step is finding the right kind of financing for your project.
4. Financing small to medium-sized home improvement projects with credit, a personal loan, or home improvement loans
For a smaller or mid-sized project that you can’t cover with cash, credit might be a good option, especially if you are in a financial situation where you believe you’ll be able to pay your balance quickly.
If you go this route, you could open a credit card that is interest-free for an introductory period and offers cash-back rewards to make the most of your home improvement spending. 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 and pay more over time. Also, of course, your balance would grow if you decided to use this card for anything beyond your planned renovation, which could result in you owing and paying more than you anticipated.
For projects that cost a little more, or that you can’t pay back fast enough for credit to make sense, applying for a personal loan to pay for home improvements might be a better idea.
You could also look in government-backed programs like the FHA Title 1 loan for fixed-rate options.
There are several benefits to choosing a home improvement loan for your renovation. First, you can compare options to get the loan amount and flexible repayment term that suits your budget and project needs.
Unlike credit card financing, which typically 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 home improvement loan will remain the same.
For example, once you’ve locked in a fixed rate with a Discover® personal loan, it won’t increase at all over your loan term.
Have more questions about finding the best home improvement loan for your project? Learn More About Home Improvement Loans
Are home improvement loans hard to get?
A home improvement loan is a personal loan you take out specifically to pay for home renovations. It is typically an unsecured loan, so you don’t need to use your house as collateral. Your ability to qualify, and the loan offer you receive, will depend on your lender, desired loan amount, credit score, and overall creditworthiness.
Plus, with a Discover personal loan, the application process can be fast, and funds can be sent as soon as the next business day after your acceptance.
As you consider your loan options, you can use our personal loan calculator tool to estimate your monthly payment, APR, and total loan cost before you even apply. All you have to do is enter the loan amount you're looking to borrow, the loan term you want, and your credit score.
5. Financing a larger renovation with your home equity
For a bigger, more expensive home improvement project, you might consider applying for a home equity loan or home equity line of credit (HELOC). These types of financing are secured loans, where your house is collateral that “secures” the loan. A secured loan allows the lender to charge a lower interest rate than for an unsecured loan like a home improvement loan. Your loan interest may also be tax deductible when you use your home equity. Be sure to check with a tax advisor.
With a home equity loan, also known as a second mortgage, your lender gives you a lump sum at a fixed rate. You repay this loan option over a number of years with set monthly payments.
A home equity line of credit (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 you expect to complete over an extended period. But note that most home equity loans carry a variable interest rate, so borrowing from your home equity will cost you more if rates rise.
6. Get to work, prepare for unexpected costs, and plan for repayment
Once you have funding and plans in place, it’s time to get to work. For some homeowners like DIYers, this may be the most exciting part, and for others it might be a necessary headache. Either way, there are still financial considerations you should be keeping in mind at this stage.
No matter how you pay for the renovation, be prepared for unexpected costs to pop up and have a plan for how you will pay for those too. Do you have enough cash savings? Will you add these costs to your same credit card? Did the amount of your home improvement loan include enough wiggle room? Do you need to tap into your home equity line more than originally planned?
Whether these costs come from changes in product availability, labor costs, or just changes to your vision for the project, you will want to be prepared. Also, if you are working with a contractor, file 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.
Throughout the process, if you used any kind of credit or borrowing, you’ll want to keep repayment top of mind. Credit, personal loans, home improvement loans, and home equity all have their benefits—but falling behind on payments is an easy way to make any project cost more than you budgeted.
Overall, when you’re tackling home improvement projects and need to finance them, it’s important to understand the size of your project and match it to the type of financing that fits best. If you find that the flexibility and structured repayment of a personal loan fit your financial situation, check out our personal loan calculator to determine your monthly payments.
Frequently Asked Questions
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There are many options for financing home improvement projects including credit cards, personal/home improvement loans, and a home equity line of credit. The best fit for you will depend on how large your project is and your current credit health.
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Qualification requirements vary by lender. Approval may depend on factors such as credit score, income, loan amount, and overall creditworthiness.
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If you don’t have the equity for a home equity line of credit, then an unsecured personal loan might be a good option.
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Consider a secured loan, like a home equity line of credit which requires collateral but may be more available to those with lower credit scores. If you’re interested in an unsecured personal loan you could consider smaller loan amounts, co-signers on your loan, or improving your credit.
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