A home remodel can be a large financial undertaking and one that requires a lot of planning. One of the biggest questions you may have is how to finance a home remodel.

While the ideal way to pay for a renovation or upgrade project is by saving up, there are several other ways you can fund the project. Some of the options include tapping into your equity, using a personal loan, or applying for a government loan.

How Much Does a Home Remodel Cost?

The average home remodel cost is $48,384. Depending on the scope of the project, costs can go up to $167,000 for high-end projects.

These are the 2024 national averages for different types of projects:

  • Bathroom Remodel: $25,251
  • Kitchen Remodel: $79,982
  • Roof Replacement: $30,680
  • Deck Addition: $17,615
  • Window Replacement: $25,799
  • Primary Suite Addition: $164,649

How To Finance a Home Remodel- 10 Options

There are several ways to finance a home remodel, depending on how much you need to borrow, whether you have equity and other factors.

1. Home Equity Loans 

A home equity loan allows you to tap into the equity of your home. You’ll usually be able to borrow up to 90% of the available equity and will have to repay the loan over a longer loan term of up to 30 years. Home equity loans have fixed interest rates and monthly payments.

Best For: Home equity loans are best when you know the full cost of the renovation project and need the money upfront to pay for it.

Pros

  • Fixed interest rates and monthly payments
  • Interest may be tax-deductible if you use the funds for qualified home improvements
  • Longer repayment terms of up to 30 years

Cons

  • You may lose your home if you default
  • You may end up with an underwater mortgage if the property value declines
  • It may not be easy to qualify if you don’t have good credit

2. HELOCs

A home equity line of credit or HELOC is a revolving line of credit. You may be able to borrow up to 85% of the value of your home minus your outstanding mortgage balance. Interest rates on HELOCs are variable, so your monthly payments can change.

You’ll usually have a draw period of ten years, during which you can spend the money and 20 years to repay the balance.

Best For: A HELOC is best if you need the flexibility to draw money as and when you need it.

Pros

  • Interest may be tax-deductible for qualified home improvement expenses
  • Lower interest rates compared to other options like personal loans
  • Borrow money as and when you need it

Cons

  • Your payments may go up if interest rates change
  • You risk losing your home if you don’t repay what you owe
  • You may end up overspending with a revolving line of credit

3. Cash-Out Refinance

With cash-out refinancing, you can replace your current mortgage loan with a larger new mortgage. You’ll get the difference in cash, which you can use for your remodeling project. This is usually a good option if you’re planning to stay in your current home long-term.  

Best For: This is a good option if you’re able to qualify for a lower mortgage rate than what you’re currently paying.

Pros

  • You may be able to save with a lower interest rate on your mortgage
  • You can switch to a fixed-rate mortgage if you currently have an adjustable-rate loan
  • You may be able to lower your monthly payment when you refinance

Cons

  • You’ll owe a larger amount of debt
  • This option is not viable if you don’t qualify for a lower rate
  • You may need a good or excellent credit score (670 or higher) to qualify

4. FHA 203(k) Loans

If you don’t have good credit, an FHA 203(k) renovation loan backed by the Federal Housing Administration (FHA) may be a good option. However, you can’t use the funds from the loan for any luxury enhancements, such as installing a swimming pool.

Best For: Borrowers with less-than-ideal credit who may not qualify for other financing options.

Pros

  • Lower credit score requirements
  • You’ll make a single payment each month for the mortgage and home improvement loan
  • You may qualify for the loan with only a 3.5% down payment

Cons

  • You can only borrow the loan for a primary residence
  • You must use a licensed contractor
  • It may take longer to close the loan

5. Home Improvement Loans

A home improvement loan is an unsecured loan offered by online lenders, credit unions, and banks. The interest rate and loan amount you qualify for are based on your credit score, and funds are quickly available once your loan is approved.

Best For: This is a good financing option if you don’t want to tap into your equity but need access to funds quickly.

Pros

  • Fast funding
  • You don’t risk losing your home if you can’t repay the loan
  • Some lenders may charge low or no fees

Cons

  • Maximum borrowing limits are lower compared to home equity loans
  • Interest rates can be higher compared to other financing options
  • Repayment periods are usually shorter than equity financing

6. Government Grants and Loans

Government loans and grants are harder to qualify for, but you may be able to save on borrowing costs if you qualify. For example, Veterans Affairs offers VA cash-out refinance loans, through which you can borrow against your home’s equity at competitive rates compared to conventional loans.

Best For: Government loans are a good option for those who can meet the specific eligibility requirements of the loan program.

Pros

  • You may be able to qualify even with a less-than-ideal credit score
  • You may be able to get a loan at a lower rate compared to other options
  • Loans are backed by a government agency

Cons

  • You must meet the specific requirements of the loan program to qualify
  • The application and underwriting process may take longer than
  • Loan funds can usually be used only for primary residences

7. Personal Loans 

Unsecured personal loans can be a good option to finance a home renovation project quickly. Interest rates can range from 6% to 36%, and the lowest rates are available for those with good or excellent credit.

Best For: Personal loans are best for urgent repairs and when you don’t want to use your equity.

Pros

  • Loan funds are available quickly
  • Easier qualification requirements
  • You don’t need a collateral to qualify

Cons

  • Interest rates are higher, especially if you don’t have good credit
  • Repayment terms are shorter, usually up to seven years
  • Lower loan amounts

8. Credit Cards

For smaller projects, you may be able to use a 0% APR card and pay it off during the interest-free period to save on interest charges. You may also be able to earn reward points on purchases. Keep in mind that this can turn out to be very expensive if you don’t clear the balance during the promotional period.

Best For: This option is best for smaller projects and if you qualify for a 0% APR card.

Pros

  • You may be able to borrow the money without any interest if you clear the balance within the interest-free period
  • You may be able to earn reward points on purchases
  • You can borrow as and when you need

Cons

  • You’ll usually need excellent credit to qualify for a 0% APR card
  • You may end up paying high-interest charges if you don’t pay back the balance within the billing cycle
  • You may get into a debt cycle if you overspend

9. Title 1 Property Improvement Loan Program

Title 1 loans are a good option for borrowers who want to make specific updates, such as improving energy efficiency or buying appliances. You can borrow up to $25,000 and will need to typically repay the loan within 20 years.

Best For: This is a good option when your project includes expenses that are specified in the loan program.

Pros

  • Lower credit score requirements
  • Low, fixed interest rates
  • The property doesn’t need to be your primary residence to qualify

Cons

  • Loan funds can only be used for critical repairs
  • You must pay an upfront mortgage insurance premium
  • You can only use an approved lender

10. Savings

You can set money aside each month for planned future projects and DIY home repairs. This will allow you to save thousands of dollars in interest charges. You can also save and pay as you go if your project doesn’t require a lump sum payment upfront.

Best For: Paying in cash with your savings is a good option for planned future projects and when you’re disciplined enough to put aside money each month.

Pros

  • You’ll save thousands in interest charges
  • You won’t have to pay anyone back
  • There’s no impact on your credit score

Cons

  • It may take time to save enough money
  • There may be other competing financial requirements that make it difficult to save
  • Not a viable option for emergency repairs since you won’t have time to save

How To Select The Best Financing Option for a Home Remodel

With so many financing options available for your next home remodel, it can be difficult to choose one that fits your needs. Here are a few things to consider when evaluating your options:

  • Estimate your renovation costs will cost and how much you’ll need to borrow.
  • For smaller projects under $5,000, using your existing savings, a 0% APR credit card or a personal loan may be good options.
  • Determine how much equity you have in your home.
  • For bigger projects, you may want to tap into your equity with a HELOC, cash-out refinance, or home equity loan to fund home improvements.
  • Compare the interest rates on different types of loans to determine how much you’ll pay.
  • Consider additional costs, such as closing costs and origination fees, to get a better understanding of the true cost of borrowing.

Carefully Compare the Costs of Each Option Before You Borrow 

Financing a home remodel takes time and planning. Homeowners should consider all the loan options and the costs associated with each of them to make an informed decision.

Get quotes from multiple lenders to compare terms and rates and see which loan option is the best for you.