Remodeling Guides
Working With Pros
10 Ways to Finance a Home Remodeling Project
If you want to renovate but lack the funds, or need additional cash to complete the work, check out these options
Been putting off a home improvement project until you have more cash on hand? Or maybe the price tag on a design or remodeling project you’ve already started has grown. Either way, taking advantage of the many financing options available can get you to the finish line of living more happily in your home sooner than you might think. Here, we explain the different types so you can choose the right one for you.
2. Home Equity Line of Credit (HELOC)
Like a home equity loan, a HELOC uses your home as collateral and usually lets you borrow up to 85% of your home’s equity. As you pay down the amount, typically you can take additional draws over a specified period. The interest rate can be fixed or variable.
Houzz has partnered with Figure, the largest nonbank provider of home equity lines of credit in the United States, to make financing for renovation and design projects more accessible and faster. The fully digital application can be completed quickly, and approvals can take minutes. Learn more at the Houzz Financing Hub.
Like a home equity loan, a HELOC uses your home as collateral and usually lets you borrow up to 85% of your home’s equity. As you pay down the amount, typically you can take additional draws over a specified period. The interest rate can be fixed or variable.
Houzz has partnered with Figure, the largest nonbank provider of home equity lines of credit in the United States, to make financing for renovation and design projects more accessible and faster. The fully digital application can be completed quickly, and approvals can take minutes. Learn more at the Houzz Financing Hub.
3. Cash-Out Refinancing
Cash-out refinancing replaces your existing mortgage with a new mortgage for a higher amount. The financing amount you receive for your renovation project is the difference between the two and is paid out as a lump sum. The maximum amount you can add to your existing mortgage is typically 80% of the home’s current value. The interest rate is fixed.
Shop for kitchen and dining furniture
Cash-out refinancing replaces your existing mortgage with a new mortgage for a higher amount. The financing amount you receive for your renovation project is the difference between the two and is paid out as a lump sum. The maximum amount you can add to your existing mortgage is typically 80% of the home’s current value. The interest rate is fixed.
Shop for kitchen and dining furniture
Financing Options Without Equity
These funding sources also can help you get your renovation job done.
4. Savings
Using money from a savings account or brokerage account is the easiest option. Be mindful of your financial institution’s rules on withdrawals and any minimum balances needed to avoid fees. Note that if you draw from a retirement plan to pay for renovations and are younger than 59½, you’ll likely have to pay a 10% early-withdrawal fee as well as taxes on the amount.
New to home remodeling? Learn the basics
These funding sources also can help you get your renovation job done.
4. Savings
Using money from a savings account or brokerage account is the easiest option. Be mindful of your financial institution’s rules on withdrawals and any minimum balances needed to avoid fees. Note that if you draw from a retirement plan to pay for renovations and are younger than 59½, you’ll likely have to pay a 10% early-withdrawal fee as well as taxes on the amount.
New to home remodeling? Learn the basics
5. Credit Cards
Charging remodeling costs to a credit card is convenient, and the payouts are instant. However, interest rates on charges carried past the due date often are steep and variable. One strategy is to get a credit card with a 0% APR period and pay the entire amount due before that period ends, typically 12 to 21 months.
Charging remodeling costs to a credit card is convenient, and the payouts are instant. However, interest rates on charges carried past the due date often are steep and variable. One strategy is to get a credit card with a 0% APR period and pay the entire amount due before that period ends, typically 12 to 21 months.
6. Contractor Financing
Some home improvement contractors offer loans directly, usually through a third-party lender. The contractor submits the loan application, and a decision can be made quickly. The loan amounts can be in the six figures and are paid as a lump sum. Some loans are offered at no interest if they’re paid back within an introductory period. The interest rate can be fixed or variable.
See why you should hire a professional who uses Houzz Pro software
Some home improvement contractors offer loans directly, usually through a third-party lender. The contractor submits the loan application, and a decision can be made quickly. The loan amounts can be in the six figures and are paid as a lump sum. Some loans are offered at no interest if they’re paid back within an introductory period. The interest rate can be fixed or variable.
See why you should hire a professional who uses Houzz Pro software
7. Personal Loan From a Financial Institution
Personal loans from financial institutions are unsecured, so you won’t be putting your home at risk. Funding, which is paid as a lump sum, can be available in as little as a week. The amount tends to be smaller than with equity-based loans, and the interest rate is usually higher. The interest rate can be fixed or variable.
Personal loans from financial institutions are unsecured, so you won’t be putting your home at risk. Funding, which is paid as a lump sum, can be available in as little as a week. The amount tends to be smaller than with equity-based loans, and the interest rate is usually higher. The interest rate can be fixed or variable.
8. Personal Loan From a Relative or Friend
This type of loan can be easier and less costly than going through a financial institution, as the paperwork, any interest and repayment terms are discretionary. It’s advisable to have a written contract so there are no misunderstandings. And note that there can be emotional costs to being indebted to a friend or relative.
This type of loan can be easier and less costly than going through a financial institution, as the paperwork, any interest and repayment terms are discretionary. It’s advisable to have a written contract so there are no misunderstandings. And note that there can be emotional costs to being indebted to a friend or relative.
9. Government-Backed Loans
The Federal Housing Administration backs several home renovation loan options offered through private lenders.
If your renovation goal is to make your home more livable, useful, accessible or energy-efficient, you might qualify for a Title 1 fixed-rate loan. The maximum loan amount for a single-family home is $25,000, and amounts less than $7,500 are usually unsecured. The payout is a lump sum, and the interest rate is fixed.
If you need to borrow more than $25,000, you might qualify for a 203(k) loan (for major work). This combines a renovation loan with a mortgage. A portion of the loan goes toward purchasing the home, and the rest is paid to the contractor as needed. The interest rate can be fixed or variable.
The Federal Housing Administration backs several home renovation loan options offered through private lenders.
If your renovation goal is to make your home more livable, useful, accessible or energy-efficient, you might qualify for a Title 1 fixed-rate loan. The maximum loan amount for a single-family home is $25,000, and amounts less than $7,500 are usually unsecured. The payout is a lump sum, and the interest rate is fixed.
If you need to borrow more than $25,000, you might qualify for a 203(k) loan (for major work). This combines a renovation loan with a mortgage. A portion of the loan goes toward purchasing the home, and the rest is paid to the contractor as needed. The interest rate can be fixed or variable.
10. Fannie Mae and Freddie Mac Loans
Fannie Mae and Freddie Mac are government-sponsored enterprises that have a hand in some renovation loans. One is the HomeStyle Renovation Loan (Fannie Mae), for a wide range of home improvements. Another is the ChoiceRenovation Loan (Freddie Mac), for more limited types of renovations, such as increasing energy efficiency. These loans combine the renovation cost and the home cost into a single mortgage, with a maximum loan amount of 75% of the projected value of the home when the work is finished. Funds are released to the contractor. The interest rate can be fixed or variable.
More on Houzz
Read more stories
Find home professionals
Shop for products
Fannie Mae and Freddie Mac are government-sponsored enterprises that have a hand in some renovation loans. One is the HomeStyle Renovation Loan (Fannie Mae), for a wide range of home improvements. Another is the ChoiceRenovation Loan (Freddie Mac), for more limited types of renovations, such as increasing energy efficiency. These loans combine the renovation cost and the home cost into a single mortgage, with a maximum loan amount of 75% of the projected value of the home when the work is finished. Funds are released to the contractor. The interest rate can be fixed or variable.
More on Houzz
Read more stories
Find home professionals
Shop for products
Sponsored
Sponsored
Fairfax County's Specialized, Comprehensive Renovations Firm
If you made a big down payment on your home, paid for it outright or have lived in your home long enough for there to be a substantial difference between your home’s market value and the amount you still owe on your mortgage, you can borrow against that home equity. There are three types of renovation financing based on equity.
1. Home Equity Loan
Sometimes called a second mortgage, a home equity loan uses your home as collateral and usually allows you to borrow 80% to 85% or more of your equity, distributed as a lump sum. So, for example, if you bought your home for $500,000, have $200,000 left on your mortgage and borrow 80% of your equity, your loan would be $240,000. The interest rate is fixed.
Find a general contractor near you