Smart Ways to Finance Your Home Renovation

"TheSmartConsumer is an Amazon Associate, we may earn commissions from links on this page that you click on and make qualifying purchases, thanks for helping support us"


If you are considering renovating your home, one of the challenges you might face is how to finance it. The best approach to this will vary depending on a number of factors, including the reason that you are renovating. For example, if a renovation is going to bring you a significantly higher price for selling the house, meaning that you expect to get the money back and then some, depleting your savings or taking out a substantial loan might not be a bad idea. 

On the other hand, if you are doing the remodel for your own purposes, you may want to be a little more conservative in your spending. What your credit is like, the type of renovations that you want to do and the freedom that you want to choose how the work is done and who by may also all be factors. You should do your research and possibly talk to a financial professional to make sure that you are choosing the best method to finance your renovation, but the overview below can help you get started.


You could use your savings to pay for the project. This can be the cheapest method since it won’t cost you anything in interest. However, if it means cleaning out your savings, it might not be the best idea. If you are using your savings, you might want to consider just doing one project or room at a time instead of trying to redo the entire home. This could mean delaying your project for a few months or years as you look at ways to revamp your budget and save money until you’re able to complete.

Home Equity

A good option for many people is a home equity loan or a home equity line of credit. If you have equity in your home built up from paying the mortgage down over the years, you may be able to borrow against that. This can be an excellent option if your credit is also strong and interest rates are low. Usually, you can borrow a substantial percentage of the total value of your home. One advantage of a home equity line of credit is that you do not have to use it immediately to start on renovations. 


If you are going to have the work done over a long period of time or there are delays for other reasons, that money can sit in an account that earns interest and grow. The trick is to make sure that you are not tempted to then spend it on other things. To learn more, review a guide to help you understand what your options are in order to borrow and pay it back, how your taxes might be affected, how to access your home equity and what your rates are.

Personal Loan

A personal loan usually has a higher interest rate than a home equity loan, but if you do not have enough equity in your home or you only need a small amount, a personal loan is another option. The interest rates are still lower than they would be if you put it on a credit card in most cases. You are generally limited in how long you have to repay this loan, but since people usually borrow less with a personal loan than with a home equity loan, this may not be an issue.

Government-Backed Loans

There are several different types of government-backed loans you may be eligible for depending on such factors as what state you live in, what type of renovations you are doing and what your credit is like. These types of loans may be particularly helpful if your credit is not stellar or you are struggling to qualify for other types of loans for other reasons, such as not enough home equity. There are limits. 

More:  How Does a Cash Discount Program Work?

For example, you cannot use an FHA 203(k) loan to do a luxury upgrade, like putting in a pool. You might need to work with an approved contractor or meet other requirements. There might also be grants available to you at the state or local level. These types of loans are not the best fit for all homeowners, but there are circumstances in which they can be helpful.

Credit Cards or Your 401(k)

Neither of these are the best of options. Credit cards have a high interest rate, and you are likely to pay a great deal in interest over the time it takes you to pay off something as large as the money needed for a remodel. As for a 401(k), borrowing against your retirement is just generally not the best idea, and you will usually have a time limit in which to pay it off. 

However, there are circumstances in which these options might be the right ones. You might have an emergency that you need to repair, and your credit cards and retirement account might be the only way for you to get the money that you need. A credit card might also be the right choice if you can qualify for one at a 0% interest rate and pay it off before it increases, usually in 12 or 18 months.