Financial Education Blog

How to fund your home improvement projects

Spring is the perfect time to refresh your home. But financing your home renovation project – whether it’s a massive overhaul or some quick fixes – depends on your situation. If your bank account leaves you with little option, don’t give up on your plans before doing your research.


How should I finance my home renovation project?

How you pay for your home renovation project depends on your financial situation and the size of your project. While saving up for a specific project and using the funds saved is an ideal way to pay for your upgrade, it isn’t always feasible.


To determine whether or not home improvement financing makes sense, you’ll need to consider your monthly budget, the return on investment and the size of your project. If you’re in good financial health and if the project will increase the value of your home, the cost of financing could be worth it.


The best ways to finance home improvements


Home improvement loans. These are unsecured personal loans offered by financial institutions. Because they are unsecured, you don’t need to use your house as collateral to qualify. Your interest rate and qualification are based on your credit score, and the money is often distributed quickly into your bank account.


Home improvement loans typically have shorter repayment terms, lower loan amounts and fewer fees than a home equity loan or a home equity line of credit (HELOC). But because they’re unsecured, home improvement loans generally have higher rates than home equity loans or HELOCs. Some lenders also charge fees for application processing, late payments and even prepayments on home improvement loans. Home improvement loans are best for midsize projects. Before applying for a home improvement loan, be sure to compare lenders to see who offers lower interest rates, competitive fees, friendly repayment terms and more.


Home equity lines of credit (HELOCs). HELOCs are a popular way to finance home improvements. HELOCs are secured loans, so you can qualify for lower interest rates. It’s also a revolving credit, which means that you can take what you need, when you need it.


Since HELOCs allow for quick access to funds, it’s a great home repair option. However, because you’ll have to put your home up as a collateral, your home could be foreclosed if you don’t make payments on time. Most HELOCs also have variable interest rates, which means your payment can increase depending on market conditions. HELOCs also have a major prerequisite: in order to borrow against your house, you must have sufficient home equity. Before you consider a HELOC, make sure you have at least 15 to 20% equity in your home.


Home equity loans. Instead of applying for a HELOC, consider applying for a home equity loan. Sometimes referred to as a second mortgage, home equity loans are paid out in a lump sum that you can repay over a number of years in regular fixed monthly payments.


Once you lock in your fixed rate, you pay the same monthly payment over the life of your loan so you don’t have to worry about market fluctuations. However, you do have less payment flexibility than you would with a HELOC.


If you have a hard estimate of how much your project will cost, a home equity loan could be the best loan option for your situation. Keep in mind that missing a payment could significantly hurt you since you use your home as collateral. Your home could be foreclosed if you fall too far behind on payments.


Mortgage refinance. Refinancing your mortgage for a cash-out refinance is another option. Since you get to pocket the difference of the new loan, you could use the extra money from a cash-out refinance to make home improvements. When refinancing, you need to make sure you’re not swapping your old mortgage for a rate-and-term refinance, because you won’t receive funds like you would with a cash-out refinance.


If you’re seriously considering refinancing, you need to consider the drawbacks very carefully. You’ll need to pay for an appraisal, an origination fee, taxes and other closing-related costs. And unless you’re refinancing your mortgage for a shorter term, you’re going to be extending the life of your loan, meaning it will take you longer to pay off.


Credit cards. If you’re making minor home improvements, using your credit cards may be the best option for you. Some cards are interest-free for a set period of time, or you could use a 0% introductory APR card. Many cards come with rewards, so the more you spend on your renovation project, the more cash back you could earn if your credit card offers this option.


As with any option, there are some risks involved with making big purchases on credit cards. If you’re unable to pay your balance off before the introductory offer expires, you could face high interest rates. If you’re using your regular card, you’ll need to pay the amount back before your next billing cycle to avoid interest. And with variable rates, you could end up paying more over time.


Government loans or grants. If you can qualify for a government loan or grant, they could save you the cost of interest, insurance and more. Note that you would not have to pay back a grant. To learn more, contact your local government office. They can inform you as to what’s available, what’s needed to qualify and more.


Federal loan programs are also available. To learn more, visit To learn more about the funding options available for home improvements, call a 7 17 Credit Union representative or visit one of our conveniently located branches.


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