5 Great Ways to Finance Your Home Renovation 

Finance your home renovation loan


5 Great Ways to Finance Your Home Renovation

If you’re thinking of ways to finance your home renovation but aren’t yet sure, here are five popular financing choices. 

You may not need to set aside money for a new faucet, but a completely new bathroom will demand a greater budget. Fortunately, there are a variety of options for financing home upgrades. Cash-out refinancing, home equity lines of credit, and 401K loans are just a few of the professional suggestions for funding your next big home repair project. 

Related: HomeStyle Renovation Loan in Delaware: A Powerful 7 Minute Read

Finance your home renovation


  1. Finance your home renovation with your savings

Paying cash for a home renovation is quite straightforward—you save until you have enough money to pay for the project as it takes place. Unlike a loan, there is no need to pay interest. 

A cash-only approach may make sense for little projects, such as a new sink in a half bath. However, the amount of cash you’re able to save and how quickly, will depend on your income. It may be more difficult to save enough money on time to pay for larger projects. 

  1. Finance your home renovation with loans, such as 401(k) and IRA money

If you finance your home renovation with a loan, you’ll be dipping into sources that aren’t intended for use with the home, such as a retirement account. There will be tax consequences and, in most cases, penalties.  

Using a 401K to finance your home renovation will affect the amount of money you’ll have in retirement. 


  1. Finance your home renovation with a home equity line of credit

You can borrow against the equity or ownership you have in your home using a home equity line of credit (HELOC). Most lenders will let you borrow up to 85% of the value of your home. 

Let’s say your house is worth $300,000 and your mortgage is $150,000. That means you own 50% of the house and have around $150,000 in equity. Multiply that amount of equity by 85%—in this case, $127,500—and that’s likely how much a lender will let you borrow. 

This type of loan is like a revolving stream of funding just like a credit card. You’ll keep your first mortgage and add this loan. 

Learn more: A Guide For Home Equity Loans & HELOCS

  1. Finance your home renovation using a cash-out option

If you finance your home renovation with a cash-out option, you’ll get a fixed amount, which is subsequently rolled into a new mortgage total. 

Let’s say a home is valued at $300,000 with a $150,000 mortgage. The homeowner owns a 50% equity stake in the property, and the renovation job will cost around $60,000.

A cash-out refinance pays off the existing mortgage and replaces it with a new $210,000 mortgage, allowing the homeowners $60,000 in cash to spend as they want. 

A cash-out refinance – which some people use to consolidate their debt – raises the mortgage balance but usually has a lower fixed interest rate than a home equity line of credit. This sort of borrowing, on the other hand, may be more expensive than a HELOC. 

A home

  1. Finance your home renovation at the point of sale

Here, the homeowner works with a lender with whom their project contractor already has a relationship. The most simple and flexible alternative for you is to finance a renovation through a home renovation point-of-sale lender.  

With the help of the contractor, the loan becomes an integral component of the restoration process. The contractor can guide you through the application process, ensuring that you don’t go over the necessary amount of funding for the renovation and that the pay-over-time plan fits into your budget. 

You can make manageable, regular monthly payments over time without having to use your rainy-day reserve, 401K, or home equity. 

Bottom line 

Keep in mind that no renovation project will provide you with a dollar-for-dollar return. What you’re doing is enhancing the look and feel of your home, as well as your overall quality of life.  

In addition, do some research on the lender to see if they have experience with the type of loan you’re considering. 

Know any other ways to finance your home renovation? Tell us in the comments section.  

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