Home » Resources » Improving the Home » How to Pay for a Home Renovation Maybe you’ve been thinking about remodeling your bathroom or adding a patio to your backyard for entertaining family and friends. Home renovations like these are exciting projects that can improve your quality of life. With careful planning, research and quick access to funding, you could make your home renovation dreams come true. Ready to start renovating? This article lays the groundwork to help you prepare for your home renovation project and decide which method of financing is best for you. 4 Questions to Ask Yourself when Planning a Home Renovation Will the home renovation add value to your home? How well your home renovation will pay off when you sell your home is worth considering when you’re planning your improvement project. Some renovations may add more value than others. Here are some projects that may deliver the best cost to value ratio according to Remodeling magazine’s 2019 list of improvements that give the best return on investment: Garage Door Replacement Kitchen Remodeling New siding Deck and patio additions Window replacements What can you afford? Before you start your project, think about how much you can realistically afford and do some research to get a sense of how much everything will cost. Take a look at all of your monthly expenses and consider reducing unnecessary monthly costs to free up some cash to help pay for your home improvement project. It might also be smart to add a little extra into your budget since unexpected expenses could pop up while the work is underway. DIY: Can you do it yourself? Are you a do it yourself kind of person? Do you have friends who owe you one and might be willing to pitch in on the work? Things like painting, ripping up carpet and landscaping might be something you could take on yourself to cut back on costs with a contractor. Who should do the work? Before you choose who will do the work, look for referrals from friends, neighbors and family members. Make a list of recommended contractors and interview them to compare quotes and timing. You could even consider presenting your budget to potential contractors to see if they can work within your financial means. How to Pay for a Home Renovation Project? This is often the biggest question at stake when planning a home renovation. A lot of homeowners look to tap into the equity in their homes to pay for the expense. However, a home equity line of credit (HELOC) and other means of borrowing against the value in our home may not be right for everyone. Before you pay for your home renovation, be sure to explore all means of funding. Using a Credit Card A credit card that’s already in your wallet might seem like an easy choice for paying for a home improvement expense, but before you choose to use plastic, look at the interest rate and terms of your credit card agreement. A credit card that offers a 0% introductory rate could be a good choice if you can repay the balance during the promotional period. There could also be some added benefits if your credit card offers cash back rewards or points programs but make sure you can pay what you borrow, and that it comes with a low-interest rate — otherwise your home renovation project could cost you a lot more than you originally planned. Another thing to consider is that some contractors may not accept credit cards as a form of payment. And, if you’re using a promotional interest rate check on the credit card there could be a fee and a higher interest rate at the end of the promotional period. Borrowing from a Home Equity Line of Credit (HELOC) A Home Equity Line of Credit (HELOC) is a revolving loan that you can borrow against the equity you have in your home. If you choose a HELOC, proceed carefully. This option uses your home as collateral. So, if you can’t make payments, you may be forced into foreclosure. Also, with a HELOC, the cost of borrowing could change at any moment — since the interest rate is typically variable like a credit card. 4 things to think about before you take out a HELOC: Variable Interest Rates If your loan comes with a low-interest rate, that might be great in the beginning, but with a HELOC the variable rate could go up or down depending on the index rates. Your home is used as collateral If you’re not sure if you can make payments on a HELOC, you’ll be putting your home at risk since it’s used as collateral to back the loan. This means, if you default on payments, the lender could require you to sell your home to recover the amount you owe. There could be upfront costs and additional fees When you borrow with a HELOC, it’s a lot like taking out a mortgage. There could be upfront fees to consider, and fees that could pop up throughout the loan. The time it takes to get approved Also like a mortgage, a HELOC typically requires time and paperwork in order to be approved. If your home renovation is urgent, you may want to consider a quicker method of funding, like a personal loan. Cash-Out Refinance If you own your home, another thing you could do is look into a cash-out refinance. This option would allow you to take out a larger mortgage when you refinance so you can use the extra cash to pay for your home renovation. For example, let’s say your home is worth $300,000 and you owe $200,000 on the mortgage at a high-interest rate. You could potentially refinance at a lower rate and borrow $230,000 — using the cash payout of $30,000 to fund your home renovation project. 4 things to keep in mind with a Cash-out refinance: There could be higher closing costs than with a HELOC. Rates could be fixed instead of variable, which means your payments would remain the same during the life of the loan. If you refinance your home, the new mortgage would replace your old mortgage which means your home would still be used as collateral. The process for obtaining a cash-out refinance is similar to a mortgage and HELOC—it could take a lot of time and paperwork before the loan is approved. Personal Loans for Home Renovation If you don’t have enough money saved and borrowing against the value of your home sounds like a stressful and time consuming method for funding your home renovation project, a Home Renovation Loan might be the smarter choice. Similar to credit cards, personal loans give you easy access to money when it comes time to improve things around your home. With a personal loan, however, you might get a lower interest rate or APR versus a credit card. And, you won’t have to worry about interest rates changing or using your home as collateral because most personal loans are unsecured and have fixed interest rates. What is a Home Renovation Personal Loan and How Does It Work? A Home Renovation Loan is an unsecured personal loan that gives you quick access to funding, so you can turn your home improvement dreams into a reality. Planning a home renovation is a huge undertaking that requires budgeting, selecting the right contractors and securing financing. A renovation project can improve your quality of life, increase the value of your home and could help save money on energy costs. A Home Renovation Loan can help ease the stress of all the work that goes into planning your home improvement project by giving you quick access to funds, a fixed interest rate that’s often lower than other funding options, and fixed payments and terms so you’ll know exactly how long it will take to pay off what you borrow. What Can I Use a Home Renovation Loan For? Home renovations can be small projects like replacing windows, but they can also be larger restoration projects that improve the value and transform your property, like a new addition or a kitchen remodel. For small projects like a fresh coat of paint, you may be able to tap into your savings, but for larger and more immediate projects, drying out a hard-earned savings account or borrowing against your home might not be the right choice. Understanding what you can do with a home renovation loan will help you decide how best to approach the project and — importantly — how to finance it. Renovation loans can be used for a wide range of home improvements, including: Adding a new deck, patio or porch Not only could you boost curb appeal with a new deck, patio or porch, adding an outdoor space may boost your home’s value. Kitchen or bathroom remodel Itching to finally replace your dated kitchen cabinets with something fresh? Kitchen and bathroom remodel are among the most expensive renovations, but can significantly add up in value when you focus on utility and style. Full restorations So maybe that property built in the 1970s requires major restorations, like replacing deteriorating posts and bringing insulation up to code. These projects count as home renovations too! Rewiring and energy upgrades An energy upgrade could save you hundreds of dollars each month on energy bills. The Benefits of using a Personal Loan for Home Renovation While you can use a personal loan for just about anything, there are a few reasons why a home renovation personal loan can be a smarter choice than borrowing against your home or using a credit card. Save money: Personal loans typically offer lower interest rates. Depending on your credit score, your debt-to-income ratio and other factors like income, you may qualify for a low-interest rate personal loan. And, with a personal loan the interest rate is fixed so it won’t fluctuate like a variable rate credit card or HELOC. Another thing to consider is that borrowing against the equity in your home is often treated as a mortgage and can come with additional fees, closing and appraisal costs. Save time: You can get quick access to funds and start renovating your home sooner. Applying for a personal loan is pretty simple with usually just a few steps and quick turnaround time for funding. Some lenders can have funds deposited into your bank account in as little as one day. With a HELOC or cash-out refinance, you can only borrow against the equity you have in your home. If you’re a new homeowner, that may not be much. And, the paperwork required for loans that use your home as collateral makes it a lengthy approval process. A personal loan gives you the freedom of starting your renovation project sooner — regardless of how much equity you have in your home. Security and peace of mind: Your home is not on the line. A home renovation loan is an unsecured personal loan that doesn’t require you to use your home as collateral. When you borrow against the value of your home, you’re putting your home on the line if you find that you can’t make your monthly payments. If you fail to pay your personal loan, it may hurt your credit but it’s not going to put your house into foreclosure. Who should consider a Personal Loan for a Home Renovation? There comes a point in time where every homeowner needs to make an improvement to their home or wants to renovate to keep their home current and comfortable. A personal loan could help make any type of homeownership expense possible — quickly and hassle-free. A personal loan may also be the right solution for new homeowners who don’t have a lot of equity in their home, people who live in lower home value markets, and anyone who appreciates an easy application process and fast funding. Whatever improvements your home needs, be sure to shop around for the best lender that will help bring your home renovation dreams to life quickly with security and peace of mind.