Looking to bring HGTV-worthy home renovations to life this Spring? While TV shows and influencers do a stellar job showcasing transformations, they often gloss over the biggest question: how to actually pay for it.
Here are six smart ways to fund your projects so your finances look just as good as your home.
Smart Planning
Before you cash out on your modern jewel-toned farmhouse dreams, take some time to define your goals. Ask yourself:
- Are you planning to sell your home soon?
- Will this increase your home’s equity, resale value, or return on investment?
- Are there hidden or ongoing costs tied to this renovation?
- Does your renovation timeline and seasonality impact pricing?
- Should you DIY or hire professionals?
- How large is the project? Are there multiple phases?
- What’s the estimated cost for each project?
- Can you comfortably cover unexpected expenses?
Your answers will help you decide whether to hammer on or put the toolbox down.
If you’re knee-deep in a list of home improvements, prioritization is your best friend for saving costs. Focus on needs before wants, like replacing a roof before repainting a bedroom.
Once you’ve established priorities, gather quotes and build a realistic budget.
Want help choosing renovations that pay off? Check out our blog on top home improvements to boost equity and maximize ROI! (The #1 project might surprise you!)
Now, let’s get into those six funding options!
1.) Home Equity Line of Credit (HELOC)
A Home Equity Line of Credit (HELOC) works like a credit card; it is a revolving line of credit secured by the borrower’s home equity.
Quick refresher: Your home equity is your home’s current market value minus the amount you owe on a mortgage.
With a HELOC, you’re approved for a maximum amount you can borrow, referred to as your credit limit, and can draw funds as needed during a set “draw period.” During this time, you only pay interest on what you use. However, most HELOCs have variable interest rates, meaning your rate and monthly payment can fluctuate.
HELOCs are ideal for borrowers with ongoing or unpredictable expenses that benefit from financial flexibility.
Example: Kitchen renovations often involve multiple moving parts: appliances, cabinets, countertops, flooring, painting, and more. Because these subproject costs can vary, it can be challenging to estimate exactly how much the entire renovation will cost. HELOCs provide borrowers with the flexibility to spend more or less depending on their needs.
Pros:
- Flexible and reusable line of credit (borrow, repay, and borrow again)
- Only pay interest on what you use
- Interest may be tax-deductible
- Rates are usually lower than home equity loans
Cons:
- Fluctuating interest rates that alter payment totals
- Riskier for people who struggle to control spending and borrowing
- Uses home equity as collateral
- Typically higher rates than a first mortgage
- Longer approval process
2.) Home Equity Loan
A Home Equity Loan (often called a second mortgage) gives borrowers a lump sum upfront, secured by their home equity, which they repay over a set term with consistent monthly payments and a fixed interest rate. The term “fixed” means they do not fluctuate.
Home equity loans are great for one-time expenses with a clear price tag, and individuals who want predictable payments and a fixed rate.
Example: If you know that your roof replacement will cost $15,000 upfront, a home equity loan allows you to borrow that exact amount with unchanging monthly payments.
Pros:
- Fixed rate
- Stable monthly payments
- Ideal if you know the exact amount you need
- Terms typically range from 5 to 15 years
- Interest may be tax-deductible
- Typically lower rates than credit cards or personal loans
- Helpful for projects with a quicker turnaround time
Cons:
- Less borrowing flexibility
- Uses home equity as collateral
- Typically higher rates than a first mortgage
- Longer approval process
3.) Cash-Out Refinance
A cash-out refinance replaces your existing mortgage with a new, larger loan. The difference between your current balance and the new loan amount is paid to you in cash.
Example:
- Home’s current home value = $300,000
- Current mortgage loan balance = $200,000
- New loan through cash refinance = $250,000
$200,000 of your new loan pays off your existing mortgage.
The extra $50,000 you receive as cash.
Cash-out refinancing can be a smart option if you have strong equity, can secure a competitive rate, and are funding renovations with a solid return on investment. Just keep in mind that closing costs and long-term interest should factor into your decision.
Pros:
- Lump sum
- Lower interest rates compared to personal loans or credit cards
- Single monthly payment
- Interest may be tax-deductible
- Typically fixed rate
Cons:
- Increases your mortgage balance
- Closing costs are typically 2-5% of the loan
- May increase repayment time
- May pay more in interest over time
- Uses home as collateral
- Longer approval process
4.) Personal Loans
The previous three options leaned heavily on home equity, but that’s not a reality for every homeowner, especially those who haven’t yet built up enough equity. A personal loan is our first example of an equity-free alternative.
Personal loans are typically unsecured loans that provide a lump sum that borrowers repay over a fixed term with set monthly payments.
Personal loans tend to have a fast approval and funding process, making them attractive for smaller projects with a shorter timeline. They are commonly used for expenses like emergency repairs or new appliances.
Pros:
- Lump sum payment
- Fixed interest rate
- Terms typically range between one and seven years
- Can be unsecured or secured (usually unsecured)
- Faster approval process than secured loans
Cons:
- Rates are typically higher than secured loan options (like home equity options)
- Lower borrowing limits compared to home equity options
- Shorter repayment terms often with higher monthly payments
- Typically requires a higher credit score
- No tax benefits
- Lower borrowing limits
5.) Credit Card
Credit cards are a type of revolving line of credit that allows cardholders to borrow up to a set limit from a financial institution. Borrowers repay the balance monthly, ideally in full to avoid interest, or make minimum payments, which will accrue interest over time.
Often the most accessible option on this list, credit cards are a convenient way to cover smaller home improvement expenses, especially those you can pay off quickly. Think light fixtures, paint supplies, or small appliances.
Some cards offer a 0% introductory APR, making them a smart short-term solution if you can pay off the balance before the promotional period ends.
Pros:
- Immediate, convenient access to funds
- Potential cash back, points, and rewards
- 0% intro APR options
- Helpful for smaller purchases
- Can build your credit score with responsible use
Cons:
- Potentially high interest rates
- Requires discipline to pay off balances quickly
- Risk of accumulating long-term debt
- Lower credit limits compared to other financing options
- High credit utilization can negatively impact your credit score
- Must qualify for a card
6.) Cash
And the crowd chants in unison: “No debt! No debt! No debt!”
Paying in cash is the least risky and often the most gratifying way to fund your home improvement projects, especially for smaller projects or those you can preplan. There’s no interest, no monthly payments, and no long-term debt to manage. The tradeoff? It can take time and discipline to build up enough savings, especially for larger renovations.
While large savings goals can feel daunting and out of reach, the right financial solutions can help you get there faster. Consider the following options:
A. High-Yield Savings Account
Picture a traditional savings account with significantly higher interest rates. That’s a high-yield savings account (HYSA)! As you plan out your renovations, grow your money while it sits safely in this easily accessible account.
Pros:
- Higher interest earnings than a traditional savings account
- Insured by the NCUA
- Accessible funds
- Limits spending temptation as it’s separate from everyday spending funds
Cons:
- Variable interest rates
- Lower returns compared to long-term investments
- Potential withdrawal limits
- Time to transfer funds can take a few days
B. Money Market Account
A money market account (MMA) is very similar to a HYSA in terms of high interest rates, but it offers more direct access to funds via checkbooks and debit cards. This is ideal for short-term savings goals, especially those that benefit from quick access to cash. For example, MMAs could be used to write a check to pay for a new appliance.
Pros:
- Check writing and debit card capabilities
- Higher interest rates than traditional savings accounts
- Insured by the NCUA
- Limits spending temptation as it’s separate from everyday spending funds
Cons:
- Minimum balance requirements may apply
- Withdrawal limits may apply
- Maintenance fees may apply
C. Certificates of Deposit (CD) account
CDs are savings accounts where you agree to leave your money untouched for a set period in exchange for a guaranteed, fixed interest rate. Once the term ends, you get your money back, including the interest earned.
Pros:
- Guaranteed interest earned upon maturity
- High interest rate returns
- Fixed interest rate
- Reduces temptation to tap into funds (early withdrawals may induce fees)
- Various term length options
- Typically no maintenance fee or service charge
- Insured by the NCUA
Cons:
- Not accessible until after the term ends
- Minimum balance requirements may apply
- Early withdrawal penalties may apply
- Lower returns compared to long-term investments
- Interest earned is taxable
- Inflation may rise higher than the CD rate
Rule of Thumb
Here’s my 15-second-or-less summary:
Ongoing, unpredictable projects → HELOC
One-time, large, defined cost → Home Equity Loan
Reworking your mortgage → Cash-out refinance
Short-term needs with no equity → Personal loan or credit card
No debt → Cash savings
Start Building Your Future
Need help deciding which financial tool to keep in your toolbelt? Whether you’re planning a small upgrade or a full renovation, our team is here to help you find the solution that works best for your goals, timeline, and budget!
