Q: I’m planning to renovate my home, and I’m wondering about my financing options. What’s the best way to pay for a home improvement project? 

A: Home renovations can breathe new life into your living space, enhance your property’s value and customize your home to your unique needs. Whether you’re upgrading the kitchen, adding a new room or tackling long-overdue repairs, funding the project can be the most significant consideration. Fortunately, there are financially responsible ways to pay for a home renovation. 

Here are 5 tips to help you choose the best option. 

1. Determine the scope and budget of your renovation

Before exploring financing options, take a moment to outline your renovation goals and calculate the total costs. Are you doing a minor upgrade or a major remodel? Gather estimates from contractors and research material prices to establish a realistic budget (don’t forget to factor in a contingency amount – there is often unplanned things that can pop up). Once you know your renovation’s scope and cost, you can determine how much financing you’ll need. 

2. Use savings for smaller projects

For smaller renovations or updates, tapping into your savings can be the simplest option. Paying with cash allows you to avoid debt and interest charges. If you’re considering this route, evaluate your emergency fund and ensure you’ll have enough left for unexpected expenses after covering the renovation costs. The best part of using savings is that you’ll be done making payments on the project when the work is complete instead of paying it off for months or years to come. 

3. Home equity loans (HELs): ideal for large-scale renovations

Home equity loans are one of the most popular ways to finance major renovations. These loans allow you to borrow against the equity you’ve built in your home, which is essentially the difference between your home’s market value and the remaining balance on your mortgage. 

The benefits of choosing a home equity loan to fund your home renovation include locking in a fixed interest rate and having predictable monthly payments throughout the loan, as well as lower interest rates than credit cards or unsecured loans. The funds are also disbursed in one lump sum, which makes them ideal for homeowners who are looking for capital to cover a single home improvement project. 

If a home equity loan sounds like it might be for you, we can help! Call us to learn about your options today. 

4. Home Equity Lines of Credit (HELOC): flexible and accessible

Another great option for funding a home renovation is a Home Equity Line Of Credit (HELOC). This loan works like a credit card, allowing you to borrow funds as needed during a draw period that generally lasts five to 10 years. This flexibility makes HELOCs ideal for ongoing or phased renovations. 

The advantage of using a HELOC for your home improvement is that you’ll only borrow what you need when you need it. You’ll enjoy lower rates compared to unsecured loans and credit cards. Plus, you’ll only make payments on the interest during the draw period. 

5. Unsecured loans: a versatile option

If you don’t have enough equity in your home for a HEL or HELOC, or you’d prefer not to tap into your home’s equity, an unsecured loan may be your solution. These loans don’t require any collateral, which means you don’t need to have accumulated equity in your home or to pay for an appraisal. The loan will have fixed interest rates and terms to go with a faster approval process when compared to equity-based loans. As loans with no collateral, they tend to have higher interest rates than loans that are backed by equity. 

This content is intended for general information and discussion purposes only. It does not constitute financial, legal, or professional advice. Readers should seek independent guidance from a qualified professional to ensure decisions are appropriate to their personal situation when applicable.