How to Finance a Home Remodel

Does your home need updating, but you do not have enough cash on hand, or dipping into savings or retirement is not an option? There are several other ways to fund a remodel. Comparing them will help you make the best choice for your project, whether it is large or small.

4 Common Ways to Finance a Remodel

Cash from savings is ideal, but when that is not possible, these are the most common options.

1. Home Renovation or Personal Loans

Many banks offer home improvement loans, which work much like personal loans and can often be applied for online.

• Borrowing limits are usually lower than equity-based options.
• Interest rates are often higher and repayment terms shorter.
• Approval is tied to your credit, not your home's value.
• You typically receive the funds as a lump sum soon after approval.

Start with your current bank and check local credit unions, which often offer competitive rates. This option works best for smaller projects or to supplement cash.

2. Home Equity Loans and Lines of Credit

These options are based on the equity in your home: its current market value minus your remaining mortgage balance. For example, a home worth $500,000 with a $300,000 mortgage balance has $200,000 in equity. Lenders set their own limits on how much of that you can borrow.

• Rates are usually lower than personal loans or credit cards.
• Repayment periods are often longer.
• Your home is the collateral, so be sure you can repay in full and on time.
• A home equity loan pays out all at once, while a line of credit lets you draw funds as the project moves forward.

3. Cash-Out Mortgage Refinance

A cash-out refinance also lets you borrow against your home's equity. Depending on rates, it may lower your interest rate or let you change your loan terms to better fit your goals. The main drawback is closing costs, which can be significant, so you may need some cash up front.

4. Credit Cards

Credit cards usually carry the highest interest rates and are generally best for small DIY projects or buying materials. Many builders and remodelers do not accept credit cards for large projects.

Choosing the Right Option

Start by talking with a remodeler about the scope of your project so you have a realistic idea of costs. Consider the potential return on investment and how the project fits your home and neighborhood. Then review your goals with a financial advisor or mortgage professional to find the option that is right for you. We are remodelers, not lenders, so this article is general information rather than financial advice.

Wondering what to tackle first? Read the benefits of home additions or learn about our process.

Ready to Plan Your Project?

Call Tracy Tesmer Design and Remodeling at 678-450-1700 or contact our design-build team online.

This article originally appeared in Lakeside News.