5 Ways to Finance Home Renovations, According to Financial Planners

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For as necessary as certain home renovations may be, financing them can be tricky. "General contractors conduct site visits and provide the cost estimate based on the scope of work and the conditions surrounding the project, however, they can't know exactly what issues, if any, are behind the walls and under the floors until demolition begins," Jean Brownhill, founder of Sweeten, says. "It is important to be aware that the construction team may make discoveries that affect the timeline and budget.

Fortunately, there are several ways to finance a home renovation without breaking your bank account. From home equity lines of credit to personal loans and more, here are five options for financing renovations according to financial planners.

1. Open a home equity line of credit.

If you're searching for a way to fund a renovation project that could increase the value of your home, consider opening a home equity line of credit (HELOC). "A HELOC allows you to open a line of credit to borrow against the equity on your home," Elizabeth Renter, a data analyst at NerdWallet explains. "You can borrow all or some of the available cash during a draw period, and repay it during a repayment period." However, Renter warns that HELOCs usually have adjustable interest rates, and therefore should be repaid as quickly as possible. "If you decide to move before it's paid off, the pay-off will eat into the profits of your home sale," she says.

2. Take out a home equity loan.

If you know exactly how much money you need for a particular home improvement project, Renter recommends looking into a home equity loan. "A home equity loan gives you a lump sum rather than a line of credit like a HELOC," she explains. "And unlike HELOCs, your interest rate will remain the same and your payment amounts won't change, so this type of loan may be appropriate for larger, one-time projects."

3. Consider a home improvement loan.

If you need to complete a renovation quickly and don't qualify for a HELOC or a home equity loan, Terri Bennett, a Certified Financial Trainer at The Financial Gym, suggests taking out a home improvement loan. "They will likely cost you a bit more in interest, but might help you get to your renovation faster than if you have to wait to build equity or save up for it," she explains. Additionally, Renter notes that home improvement loans often need to be repaid promptly, which can help your finances in the long run. "The repayment term is typically shorter than a home equity loan or HELOC, so you'll be able to get out from under the debt sooner," she says.

4. Apply for a zero-interest credit card.

For smaller renovations, Bennett suggests seeing if you can apply for a credit card with a 0% introductory annual percentage rate (APR) to pay for your project in a pinch. "This could theoretically allow you to complete a home renovation project with no interest and essentially finance it for free," she says. However, if you don't qualify for a zero-interest credit card but still choose to use a credit card, Renter says you should be prepared to pay off any costs charged to a credit card quickly. "Interest rates are highest here, so if you know you won't be able to cover the complete amount in just one to two months, you may want to consider a different option," she explains.

5. Look into refinancing your loans.

When all else fails, you always have the option of refinancing your existing loans, such as your mortgage, to pay for home renovations. "Refinancing to lower your mortgage payment could allow you to save for your home improvement projects more quickly," she explains. "A cash-out refinance, which replaces your existing mortgage with a new home loan for more than you owe on your house, is another option, but should be approached with caution," she advises. "You're essentially agreeing to take on more long-term debt."


Caroline Biggs is a writer living in New York City. Her work has appeared in The New York Times, Apartment Therapy, Refinery 29, and more.

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