How To Finance a Home Remodel
7 MIN READ
Published July 16, 2024 | Updated February 20, 2025
Expert Verified
Written by Priyanka Trivedi
Edited by Wes Silver
Reviewed by Teresa Dodson
Turbo Takeaways
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 options include tapping into your equity, using a personal loan, or applying for a government loan.
Ready to bring your home remodel to life? Explore your financing options today and find the best loan to fit your budget and renovation goals.
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
10 Options on How To Finance a Home Remodel
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.
| Pros | Cons |
|---|---|
| Fixed interest rates and monthly payments | You may lose your home if you default |
| Interest may be tax-deductible if you use the funds for qualified home improvements | You may end up with an underwater mortgage if the property value declines |
| Longer repayment terms of up to 30 years | It may not be easy to qualify if you don’t have good credit |
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.
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.
| Pros | Cons |
|---|---|
| Interest may be tax-deductible for qualified home improvement expenses | Your payments may go up if interest rates change |
| Lower interest rates compared to other options like personal loans | You risk losing your home if you don’t repay what you owe |
| Borrow money as and when you need it | You may end up overspending with a revolving line of credit |
Best For:
A HELOC is best if you need the flexibility to draw money as and when you need it.
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 viable option if you’re planning to stay in your current home long-term.
| Pros | Cons |
|---|---|
| You may be able to save with a lower interest rate on your mortgage | You’ll owe a larger amount of debt |
| You can switch to a fixed-rate mortgage if you currently have an adjustable-rate loan | This option is not viable if you don’t qualify for a lower rate |
| You may be able to lower your monthly payment when you refinance | You may need a good or excellent credit score (670 or higher) to qualify |
Best For:
This is a practical move if you’re able to qualify for a lower mortgage rate than what you’re currently paying.
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 choice. However, you can’t use the funds from the loan for any luxury enhancements, such as installing a swimming pool.
| Pros | Cons |
|---|---|
| Lower credit score requirements | You can only borrow the loan for a primary residence |
| You’ll make a single payment each month for the mortgage and home improvement loan | You must use a licensed contractor |
| You may qualify for the loan with only a 3.5% down payment | It may take longer to close the loan |
Best For:
Borrowers with less-than-ideal credit who may not qualify for other financing options.
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.
| Pros | Cons |
|---|---|
| Fast funding | Maximum borrowing limits are lower compared to home equity loans |
| You don’t risk losing your home if you can’t repay the loan | Interest rates can be higher compared to other financing options |
| Some lenders may charge low or no fees | Repayment periods are usually shorter than equity financing |
Best For:
This is a good financing option if you would rather not tap into your equity, but need access to funds quickly.
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.
| Pros | Cons |
|---|---|
| You may be able to qualify even with a less-than-ideal credit score | You must meet the specific requirements of the loan program to qualify |
| You may be able to get a loan at a lower rate compared to other options | The application and underwriting process may take longer |
| Loans are backed by a government agency | Loan funds can usually be used only for primary residences |
Best For:
Government loans are a beneficial choice for those who can meet the specific eligibility requirements of the loan program.
7. Personal Loans
Unsecured personal loans can be a great way 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.
| Pros | Cons |
|---|---|
| Loan funds are available quickly | Interest rates are higher, especially if you don’t have good credit |
| Easier qualification requirements | Repayment terms are shorter, usually up to seven years |
| You don’t need a collateral to qualify | Lower loan amounts |
Best For:
Personal loans are best for urgent repairs and when you don’t want to use your equity.
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 expensive if you don’t clear the balance during the promotional period.
| Pros | Cons |
|---|---|
| You may be able to borrow the money without any interest if you clear the balance within the interest-free period | You’ll usually need excellent credit to qualify for a 0% APR card |
| You may be able to earn reward points on purchases | You may end up paying high-interest charges if you don’t pay back the balance within the billing cycle |
| You can borrow as and when you need | You may get into a debt cycle if you overspend |
Best For:
This option is best for smaller projects and if you qualify for a 0% APR card.
9. Title 1 Property Improvement Loan Program
Title 1 loans are a practical 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.
| Pros | Cons |
|---|---|
| Lower credit score requirements | Loan funds can only be used for critical repairs |
| Low, fixed interest rates | You must pay an upfront mortgage insurance premium |
| The property doesn’t need to be your primary residence to qualify | You can only use an approved lender |
Best For:
This is a viable option when your project includes expenses that are specified in the loan program.
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.
| Pros | Cons |
|---|---|
| You’ll save thousands in interest charges | It may take time to save enough money |
| You won’t have to pay anyone back | There may be other competing financial requirements that make it difficult to save |
| There’s no impact on your credit score | Not a viable option for emergency repairs since you won’t have time to save |
Best For:
Paying in cash with your savings is a smart decision for planned future projects and when you’re disciplined enough to put aside money each month.
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.
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