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Home improvements can transform your living space, boost your home’s value, and even make it more energy-efficient.

But for most homeowners, figuring out how to pay for those upgrades is the first step before picking up a hammer or hiring a contractor.

Updated: September 27, 2024

There are a few funding options available, whether you’re tackling a small project or a complete remodel.

We will walk you through the most common ways to fund your home improvements, highlighting the pros and cons of each option. Let’s find the right approach to get your project off the ground without unnecessary financial stress.

Home improvements are popular:  43% of homeowners are planing an home improvement project within 2 year.  Most projects use a combination of different funding sources, with cash flow (42%) and home equity (32%) being the most common methods.

Comparison of funding options for home improvements

Funding Option	Best Use Cases	Pros	Cons
Personal Savings	Small projects, energy-efficient updates	No interest, full control	Depletes savings, limits future financial flexibility
Home Equity Loans & HELOCs	Large renovations, long-term projects	Low interest rates, large loan amounts	Risk of foreclosure, longer repayment period
Cash-Out Refinancing	Major renovations, homeowners with equity	Potential lower mortgage rate, large cash amount	Higher debt, closing costs, longer loan term
Government Grants & Programs	Energy efficiency, necessary repairs, lower-income homeowners	Free or low-cost funding	Strict eligibility, limited availability
Personal Loans	Mid-sized projects, quick repairs	Quick approval, no collateral	High interest rates, shorter repayment terms
Credit Cards	Small, short-term projects, emergency repairs	Rewards points, no interest if paid off quickly	High interest rates, risk of accumulating debt
Contractor & Store Financing	Medium-sized projects, no-interest offers	Convenience, deferred interest	Hidden fees, high interest if not paid off quickly
Energy-Efficient Home Loans	Solar panels, insulation, eco-friendly upgrades	Long-term energy savings, government incentives	Limited availability, long approval process

Personal Savings

Using personal savings is one of the simplest ways to fund home improvements (25% of homeowners do). Since you’re not borrowing, you avoid interest payments and lengthy loan approvals, giving you full control over your budget and project timeline. This option works especially well for smaller renovations that won’t put too much strain on your finances.

Best Use Cases for Savings

• > Minor upgrades like painting, new fixtures, or landscaping.
• > Mid-sized projects like kitchen or bathroom refreshes (not full remodels).
• > Energy-efficient improvements (installing LED lighting, weatherproofing windows).
• > Projects that don’t require immediate financing but can be planned and saved for in advance.

Pros:

• > No interest or monthly payments.
• > Complete control over your project without lender restrictions.
• > No risk of losing your home as with secured loans.

Cons:

• > Can deplete your emergency savings.
• > Might delay other financial goals, like retirement savings or major purchases.

Key Fact:

Before tapping into savings, ensure you have a sufficient emergency fund left for unexpected expenses after the renovation. If you’re financially prepared, using personal savings can be a low-risk way to invest in your home and boost its value without the stress of accumulating debt.

Home Equity Loans and HELOCs

Home equity loans and home equity lines of credit (HELOCs) are popular financing options (used by 32% of homeowners) that allow you to borrow against the value of your home. Both options use your home as collateral, making them ideal for larger renovation projects. The main difference between the two is that a home equity loan provides a lump sum, while a HELOC functions like a credit card, giving you access to funds as needed up to a set limit.

Best Use Cases for Home Equity Loans and HELOCs

• > Major home renovations, like room additions, kitchen remodels, or extensive landscaping.
• > Long-term projects that require substantial upfront costs.
• > Energy-efficient upgrades like solar panel installations or replacing HVAC systems.
• > Projects with a strong return on investment, such as bathroom or basement remodels.

Pros:

• > Typically lower interest rates compared to personal loans or credit cards.
• > Home equity loans provide a fixed interest rate and predictable payments.
• > HELOCs offer flexibility, letting you borrow only what you need over time.

Cons:

• > Your home is used as collateral, meaning failure to repay can result in foreclosure.
• > Home equity loans require immediate repayment on the full amount borrowed, regardless of project completion.
• > HELOC interest rates can fluctuate, making budgeting more challenging.

Key Fact:

Home equity financing works best for homeowners with significant equity built up and long-term projects that increase the home’s value. Make sure you’re comfortable with the risk of using your home as collateral and weigh the potential return on investment before deciding. If you have substantial equity and a solid plan for repayment, these options can be a cost-effective way to finance your dream renovations.

Home Equity and HELOC:   Looking to finance your home project? First, look at Heloc and Equity rates in order to compare your bank’s rate with other financial institutions rates to see if it’s you could save.  Then consider fees, if any.

 

Cash-Out Refinancing

Cash-out refinancing allows you to replace your existing mortgage with a new one that’s larger than what you currently owe, giving you access to the difference in cash. This option leverages your home’s equity and can be a smart choice if you want to fund larger renovations while potentially lowering your interest rate. However, it increases the total amount you owe on your home, so it’s important to weigh the benefits against the long-term financial commitment.

Best Use Cases for Cash-Out Refinancing

• > Large-scale renovations, like whole-home remodels or major structural improvements.
• > Energy-efficient updates (solar installations, geothermal heating) that increase home value.
• > Paying off high-interest debts while funding home projects if interest rates are favorable.
• > Homeowners with significant equity who want to combine mortgage refinancing and renovation funding.

Pros:

• > Potential for a lower mortgage interest rate, especially if rates have dropped since you originally financed.
• > Access to a significant amount of cash for large projects.
• > Spreads repayment over the life of your mortgage, lowering monthly payments.

Cons:

• > Increases the amount of debt secured by your home, which may extend your mortgage term.
• > Higher monthly payments if your new loan has less favorable terms.
• > Closing costs and fees associated with refinancing can add up quickly.

Key Fact:

Cash-out refinancing is best suited for homeowners with substantial equity and those looking to refinance at a lower rate while securing funds for major improvements. Before committing, assess whether the potential savings on interest outweigh the cost of refinancing and the increased debt. If done strategically, this can be a cost-effective way to fund renovations while potentially lowering your mortgage rate.

Cash-out refinance: Their rates can vary a lot, leading to thousands of dollars on a renovation project. You can negotiate (a little) your refinance rate with your bank by showing them rates and loan offer from other financial institutions.

Fannie Mae HomeStyle Renovation Loans

You can get a HomeStyle Renovation loan through Fannie Mae approved lenders, which include many traditional banks, credit unions, mortgage brokers, and online lenders. These loans are backed by Fannie Mae which lower the rates but come with a more complex process to issue funds. Available to a broader range of credit scores and higher loan amounts.

Pros:

• Single Loan Solution: Combines the refinance (or purchase) of a home and renovation costs into one loan, simplifying financing and potentially reducing closing costs.
• Wide Range of Projects: Allows for almost any renovation, including structural repairs, energy-efficient upgrades, or luxury additions like pools.
• Low Down Payment: For primary residences purchase, the down payment can be as low as 3%, making it more accessible to borrowers with limited upfront funds.
• Higher Loan Amount: The loan is based on the future value of the home after renovations, allowing you to borrow more compared to other renovation loan options.
• Available for Investment Properties: Unlike some renovation loans, HomeStyle can be used for second homes or investment properties, offering flexibility for property investors.

Cons:

• Strict Qualification Requirements: Requires a higher credit score (typically 620 or above) compared to other renovation loans like FHA 203(k).
• Complex Process: You need to work with licensed contractors, provide detailed renovation plans, and the loan process involves property inspections and appraisals, making it more time-consuming.
• Higher Interest Rates: Because it’s a conventional loan, interest rates can be higher compared to government-backed options like FHA loans, especially for borrowers with lower credit scores.
• Limited to Renovations Only: Unlike other loans that may cover repairs due to damage, HomeStyle is focused solely on improvements and upgrades, not repairs from disasters.

Best Use Cases

1- Buying a Fixer-Upper: Ideal for buyers looking to purchase a home that needs significant renovations or customizations before moving in.

2- Refinancing with Major Renovations: Homeowners who want to refinance their current mortgage and make extensive upgrades, such as adding a new room, modernizing the kitchen, or enhancing energy efficiency.

3- Investment Property Renovation: Great for property investors looking to buy or refinance a property and renovate it to increase its market value or rental income.

Key Facts

– The loan amount is based on the future appraised value of the home after renovations, giving borrowers more flexibility in their project budget.

– Eligible properties include primary residences, second homes, and investment properties, making it more versatile than many renovation loans.

– Down payment can be as low as 3%, making it accessible even for first-time homebuyers or those with limited savings.

The HomeStyle Renovation loan offers significant advantages for homeowners looking for flexible financing options, but it requires thorough planning and qualifications to maximize its benefits.

Government Grants and Loans

Government grants and loans offer homeowners a way to finance home improvements without taking on debt, especially for projects that focus on safety, accessibility, or energy efficiency. These programs are typically offered at the federal, state, or local level, with popular options like the FHA 203(k) for renovations, HUD grants, and weatherization programs aimed at improving energy efficiency. While these funds are often free or low-cost, they come with strict eligibility requirements and are usually geared toward low- to middle-income homeowners or specific types of improvements.

Best Use Cases for Government Grants and Programs

• > Necessary repairs to bring older homes up to code (roof repairs, structural fixes).
• > Energy-efficient upgrades (insulation, new windows, solar panels) through weatherization grants.
• > Accessibility modifications (ramps, wider doorways) for disabled or elderly homeowners.
• > Low- to middle-income homeowners seeking to improve safety and functionality without incurring debt.

Pros:

• > Free or low-cost funding, minimizing or eliminating the need for loans.
• > Some programs, like the FHA 203(k), can cover both home purchase and renovation costs.
• > Encourages sustainable improvements that can reduce long-term utility bills.

Cons:

• > Strict eligibility requirements, often based on income, property location, or specific project types.
• > Limited funding availability, meaning not every qualified homeowner will receive assistance.
• > Lengthy application processes with detailed documentation and inspection requirements.

Key Fact:

Government grants and programs are an excellent option for homeowners who meet eligibility criteria and are tackling necessary repairs or energy-efficient upgrades. However, funding is limited and competition can be tough, so it’s important to explore all available options at the federal, state, and local levels. Be prepared for a longer application process, and consider applying for multiple programs to increase your chances of receiving funding.

Government programs can be complex to figure out.  We create a resource to help guide you through all federal, states, counties and cities home renovations and improvement programs. Most are for lower income homeowners but some cover all incomes.

Personal Loans

Personal loans offer an unsecured way to finance home improvements, meaning you don’t need to use your house as collateral. These loans are typically easier to qualify for and come with a straightforward approval process, making them a good option for smaller to mid-sized renovation projects. However, because personal loans are unsecured, they often come with higher interest rates compared to home equity loans or lines of credit. 32% of homeowners use unsecured loans for home improvements.

Best Use Cases for Personal Loans

• > Mid-sized projects like kitchen or bathroom updates.
• > Minor improvements such as new flooring, lighting, or landscaping.
• > Projects that need quick funding, such as emergency repairs or upgrades.
• > Homeowners without significant home equity or who prefer not to use their home as collateral.

Pros:

• > Quick approval process, often within a few days.
• > No need to use your home as collateral, so there’s no risk of foreclosure.
• > Flexible use of funds, allowing you to cover a wide range of home improvement needs.

Cons:

• > Higher interest rates compared to secured loans like home equity loans or HELOCs.
• > Shorter repayment terms, which can mean higher monthly payments.
• > Loan amounts may be limited, making it less suitable for large-scale renovations.

Key Fact:

Personal loans are a great choice for homeowners needing fast access to funds for mid-sized projects without putting their home on the line. However, the higher interest rates and shorter repayment terms can make them more expensive in the long run. It’s important to compare offers from different lenders and weigh the costs against the benefits of quicker funding and flexibility.

If you’re looking toward a personal loan for your project, the personal loan rate will be the main factor. You can aslo look at a home improvement loan which a personal loan specifically for renovations.

Credit Cards

Using credit cards for home improvements can be a convenient option for smaller projects or as temporary funding until more permanent financing is secured. Many, 12% of homeowners use credit cards for quick, low-cost updates, especially if they can pay off the balance before interest accrues. Some cards even offer rewards points or cashback, making it a tempting option for minor renovations. However, the high interest rates on credit cards can quickly turn small projects into costly debt if not managed carefully.

Best Use Cases for Credit Cards

• > Small, inexpensive upgrades like new fixtures, paint, or hardware.
• > Emergency repairs when you need fast access to funds.
• > Short-term use, paying off the balance within the interest-free period.
• > Homeowners looking to earn rewards or cashback on purchases.

Pros:

• > Immediate access to funds, ideal for quick or unplanned projects.
• > Potential to earn rewards points, miles, or cashback on purchases.
• > No interest charged if the balance is paid in full within the billing cycle.

Cons:

• > High interest rates if the balance isn’t paid off quickly, making it an expensive option over time.
• > Easy to accumulate debt if you spend more than you can repay.
• > Not suitable for larger projects that require substantial funding.

Key Fact:

Credit cards can be a handy tool for minor home improvements or emergency repairs, especially if you can take advantage of no-interest offers. However, they should only be used if you’re confident you can pay off the balance quickly to avoid steep interest rates. For larger projects, credit cards may not offer enough funding or flexibility, so it’s essential to consider whether this method aligns with your financial situation and renovation goals.

Learn how lower income homeowners found fund for repairs:

How Julia Repaired Her Miami Home on a Low Income.

Lower Income Homeowner Uses Government and Loan Programs to Pay Critical Home Repairs.

Mid Income Homeowner Found Home Repair Assistance for HVAC, Roof and Plumbing.

Learn how homeowners looked and found fund for renovation:

How a HELOC Transformed a Kitchen and Bathroom.

Homeowner’s Renovation Journey: Navigating Loans and Programs for Home Improvement.

How a Cash-Out Refinance Transformed Our Luxury Home.

Contractor Financing and Store Financing

Contractor financing and store-specific credit offers, like those from Home Depot or Lowe’s, can be convenient options for homeowners looking to fund home improvements directly through their contractor or retailer. These payment plans often come with deferred interest promotions, allowing you to start your project with little or no upfront cost. However, if not paid off within the promotional period, these financing options can lead to higher costs due to interest or hidden fees.

Best Use Cases for Contractor and Store Financing

• > Medium-sized projects like new flooring, cabinets, or windows.
• > Homeowners looking for no-interest or low-interest promotions on purchases.
• > Those needing a quick and convenient way to finance a project without traditional loans.
• > Projects involving specific retailers or contractors offering their own financing deals.

Pros:

• > Easy and convenient, as financing is handled directly through the contractor or store.
• > Deferred interest promotions, sometimes offering 0% interest if paid within a certain timeframe.
• > No need to secure separate financing, saving time during the renovation process.

Cons:

• > High interest rates or fees if the balance isn’t paid off during the promotional period.
• > Potential for hidden fees or complex terms in contractor payment plans.
• > Limited to specific stores or contractors, which can reduce flexibility in choosing materials or services.

Key Fact:

Contractor and store financing can be a practical solution for homeowners who want a fast and straightforward way to fund their projects, especially if taking advantage of no-interest offers. However, it’s important to read the fine print and ensure you can pay off the balance within the promotional period to avoid higher interest rates or hidden fees. This method works best for those confident they can stick to a repayment schedule.

Energy-Efficient Home Improvement Loans

Energy-efficient home improvement loans are specifically designed to help homeowners finance eco-friendly renovations that reduce energy consumption and lower utility bills. These loans can be used for projects like installing solar panels, upgrading insulation, or replacing outdated HVAC systems. Both government and private funding options are available, with programs like PACE (Property Assessed Clean Energy) or utility rebates offering incentives for energy-efficient upgrades.

Best Use Cases for Energy-Efficient Home Improvement Loans

• > Installing solar panels, energy-efficient windows, or geothermal heating systems.
• > Upgrading insulation, water heaters, or lighting to reduce energy consumption.
• > Homeowners seeking long-term savings on utility bills through energy-efficient upgrades.
• > Eco-conscious homeowners looking to reduce their carbon footprint with sustainable improvements.

Pros:

• > Loans are tailored for energy-saving renovations, often with favorable terms or low interest rates.
• > Some programs, like PACE, allow repayment through property taxes, offering flexibility.
• > Utility rebates and government incentives can significantly reduce the cost of upgrades.

Cons:

• > Not all energy-efficient loans are available in every region, limiting options for some homeowners.
• > The approval process for government programs can be lengthy and complex.
• > If energy savings are not immediate, it may take years to recoup the cost of the loan.

Key Fact:

Energy-efficient home improvement loans are an excellent choice for homeowners who want to invest in sustainable upgrades while lowering their utility costs. Before applying, research the specific programs available in your area, including any rebates or incentives that can offset the upfront costs. If done wisely, these loans can pay for themselves over time through reduced energy bills.

End Note

Funding your home improvements requires carefully looking  at your financial situation, project scope, and long-term goals. Whether you’re tapping into personal savings, leveraging your home’s equity, or exploring government programs and energy-efficient loans, there’s a solution for every homeowner. The key is to evaluate the pros and cons of each option and choose what aligns best with your budget and renovation plans.

Ready to get started on your next project? Take the next step toward making your dream home a reality!