How To Pay for Your Next Home Improvement Project

Home Stager with Freelancer

There are many reasons to remodel all or part of your home. Perhaps some of your rooms are out of style. Maybe the house is too small for your current family.

Whatever your motivation, a home remodel can make your property a safer and more comfortable place to live. It could also increase the market value of the house. You could then use the extra money you get from selling the home to purchase a new property or pay off your student loans.

While house renovations can eventually give your bank account a boost, you will have to spend some money in the short term. After all, contractors and supplies are not free. The average remodel costs around $47,000, though prices vary greatly based on the scope of the project. Yet even if you do not have thousands of extra dollars in your bank account, you have several financing options.

1. Home Improvement Loan

A home improvement loan does not require any collateral. Many online lenders and banks offer this type of loan.

There are several other benefits of home improvement loans. You can get approved instantly, and the interest rate is fixed. However, the interest rate may be higher compared to some of the other options on this list. You also have less time to pay back the loan.

In addition, you can only borrow up to $100,000 using a home improvement loan. If you are planning an extensive project that will cost more than that, you will likely need another way to finance it.

2. Home Equity Loan

A second mortgage, also called a home equity loan, gives you a lump sum of money that you can pay back over time. With a home equity loan, you can borrow a larger amount of money compared to a home improvement loan. You also have more time to pay off a home equity loan.

While home equity loans have fixed interest rates, they also require collateral. If you do not pay back the loan in a timely fashion, you could lose your home.


A home equity line of credit, or HELOC, is a more flexible version of a home equity loan. While you can only borrow a fixed amount with a home equity loan, a HELOC is a revolving line of credit akin to a credit card.

To qualify for a HELOC, you will need to own at least 15 to 20 percent of your home’s equity. A HELOC features variable interest rates that change based on the Federal Reserve. However, you may be able to deduct the interest on your taxes.

4. Cash

If you are worried about high interest rates affecting your ability to pay back a loan, you can simply use cash. Cash payments are ideal for smaller projects. Local contractors may also prefer receiving cash or checks because they do not have to deal with as many processing fees.

To finance your project entirely with cash, you will have to save your excess funds over an extended period. Several budgeting applications can help you with this.

Before you decide to pay cash, make sure you have enough room in your budget for this expense. You should not use money from your emergency fund to finance a non-urgent home renovation.  

5. Cash-Out Refinance

A cash-out refinance lets you replace your old mortgage with a new one. You will then receive the difference between the mortgages in cash, giving you extra money to put toward a home renovation.

A refinance lets you lower the monthly payment on your mortgage. However, you will be increasing your debt. You should only consider a cash-out refinance if you have good credit, and if your new mortgage will come with an interest rate that is lower than what you are currently paying.

If you have hefty savings, you may be able to pay for your home renovation project with cash. Yet even if your bank account funds are limited you can still remodel your home by taking out a loan or line of credit.

Comments (3)

Ben DeHaven
Haven Realty & Investments - Winter Haven, FL
Proudly serving Winter Haven & Lakeland, Florida

Thanks for sharing this info Dawn! I'm sure it's a good starting point for someone thinking about doing a remodel to their home. 

Dec 07, 2022 01:59 PM
Jeff Masich-Scottsdale AZ Associate Broker,MBA,GRI
HomeSmart Real Estate - Scottsdale, AZ
Arizona Homes and Land Group/ Buy or Sell

Hi Dawn. I like all of your ways to pay for the home improvement project, probably better than going to Uncle Harry that owes you a favor. Jeff 😀

Dec 07, 2022 02:52 PM
Richard Weeks
Dallas, TX
REALTOR®, Broker
Great information, thanks for sharing.  I hope you have a great day.
Dec 19, 2022 03:57 AM