Your home is so much more than a residence. It’s a living thing.
Think about it… As your life evolves, so does your home.
Rooms change purposes when your family grows or when children grow up and move out. You make upgrades as styles change or as things wear out. And, sometimes, you renovate because you want to enjoy your home a little more.
Renovating can be exciting, but it often comes with stress. Uncertainty about project cost, or what it will limit later can both be big stressors.
When you start with a clear home renovation financing plan, you shift from reacting to costs to making confident decisions about your home.
In this guide:
Renovations aren’t just construction projects that impact your home. They’re financial decisions that affect your future flexibility.
The stress of making design choices or choosing the right appliances fades once the decisions are made. But if you don’t think through the financing or how you’re going to pay for it, the stress could linger for years after you finish the project.
Considering financing early can help you establish a realistic budget before you start detailed planning. Because nothing is more deflating than scaling back after you’ve let yourself start dreaming.
Before you swing any hammers, the first thing you need to do is understand the full cost of your project.
Getting multiple quotes can help ensure you’re getting the best price on everything from labor to materials. If it’s a do-it-yourself project, price out all your items at multiple stores and shop around.
And when you’re setting your budget, be sure to set aside an extra 10% to 20% to account for surprises, unknowns and price changes.
There is no shortage of ways to pay for home renovations and there’s no one right answer. If you're wondering how to finance home renovations, start by considering the following options:
Paying with savings means no monthly payments, but you also reduce the amount you have on hand for when you need it for something else. Financing preserves your savings but requires monthly payments going forward.
When you use a combination of both, you can preserve some of your savings while keeping monthly financing payments manageable.
| Option | What is it? | Best for: |
|---|---|---|
| Savings | Cash you've set aside in a savings account, CD or other liquid account. | When you have enough cash on hand and don't want to make monthly payments or pay interest. |
| Closed-end home equity loan | A loan borrowed against the equity in your home. | When you know the exact cost up front. |
| Home equity line of credit (HELOC) | Similar to a closed-end home equity loan, but an open line of credit you can use as needed. | When costs may be flexible or you're doing your project in phases. |
| Home improvement loan | A special loan to be used specifically for home improvement projects. | You don't have equity or don't want to borrow against it. |
| Credit cards | A short-term financing account that is readily accepted online and in most stores. | Small projects when you don't want to pay closing costs on a home equity loan. Or to help you pay for odds and ends throughout a project. |
A home equity loan is a consumer-favorite for renovations. With a home equity loan, you can borrow against the equity in your home, which is the value of your home minus the remaining balance on your mortgage.
Learn more: see how home equity works and how to calculate yours >
With a closed-end home equity loan, you borrow one lump sum with a fixed rate and make fixed payments throughout your loan’s term. These are best when you know the exact costs up front and want to borrow exactly the right amount.
Many homeowners choose to use home equity for remodel projects because they have lower rates than most consumer loans and have flexible repayment options.
A home equity line of credit (HELOC) is almost the same as a closed-end home equity loan but with a few major differences. The biggest difference is that a HELOC is an open line of credit that can be used over and over again as needed.
With HELOCs, rates are usually variable, meaning they can change during your loan term. However, many HELOCs come with a fixed-rate period, usually 5 to 10 years.
A HELOC is great when you’re doing a project in phases, or don’t know exact costs up front. Borrow, renovate and repeat as needed!
Home improvement loans are more restrictive than home equity loans. They must be used for home repairs and renovations, but they don’t require you to have equity in your home.
Most options have a fixed rate and some allow you to borrow up to 100% (or more!) of your home’s value.
These are great when you don’t have equity in your home or don’t want to borrow against it.
We all know what credit cards are, right? The little plastic things that let you spend money now and pay later?
Well, you can use those for home renovations as well. They aren’t ideal for larger projects because of the interest rate, but they are great for smaller purchases, like if you’re just getting new appliances or tackling a quick landscaping project.
The consideration is whether the project is big enough to justify paying closing costs on a home equity loan. If it’s not, credit cards may be the way to go.
Learn more tips for choosing the right credit card for your needs >
What's the simplest way to pay for your home renovations? Cash!
Certificates of deposit (CDs) can help you set money aside for set period and earn a higher rate than a standard savings account. You can also use other accounts like a standard savings account or a money market.
This will help you avoid making monthly payments after the project is finished, but it also leaves you with less savings for something else in the future. So, consider carefully before paying for home renovations with savings.
Short-term projects and long-term projects require different financing. Same with projects that have fixed costs vs. variable costs.
A HELOC works well for long-term projects that evolve over time. For example, if you’re renovating your kitchen by yourself, you can break it up into phases and finance each phase as you go.
When your project is being done by a contractor all at once, and you know the total cost, a closed-end home equity loan is the way to go.
Credit cards can be used for all sorts of odds and ends throughout the process… as long as you stay on budget!
When the renovation is done, it’s time to relax and enjoy it. And that’s exactly why you need to plan ahead for the post-renovation financial impact.
Make sure you know what your monthly financing payment will be and that it fits your budget. Not stressing about the finances afterwards definitely helps you fully enjoy your home upgrades better long-term.
Also, check your credit report after the project is complete. Taking out new loans can impact your credit score, for better or worse and affect your ability to borrow for other things.
The key is balancing your need to improve your home while maintaining financial flexibility.
Some of the most common situations that lead to renovation regret are:
Start by understanding your project size, timeline, and flexibility needs. If your costs are predictable, a fixed option may work best. If your timeline or costs may change, a more flexible option like a HELOC can help you adjust as you go.
Yes. You can use home equity through options like a home equity loan or a HELOC. Both allow you to borrow against your home’s value to help fund improvements.
It can be a good fit for projects that happen in stages or have uncertain costs. A HELOC allows you to draw funds as needed instead of borrowing everything upfront.
It depends on your financial goals. Using savings can help you avoid interest, while financing can help you keep cash on hand for other needs. Many homeowners use a mix of both.
Underestimating the total cost. Always plan for extra expenses and choose a financing option that gives you some flexibility if costs change.
Home renovations are an important investment, whether it’s for boosting your home’s value, or improving your comfort. When planned right with the right financing, you can get the job done without renovation regret.