How to Finance Your Home Renovation Project

Dreaming of that beautiful new kitchen, bathroom or closet, but not sure how to go about paying for it? There are many good reasons, both aesthetically and financially, to renovate your home. Maybe it doesn’t reflect your style or lifestyle, or your family dynamics have changed. You might even be planning to move in the future and want to make it more marketable. Whatever your reasons, be sure to figure it out before you begin. Then take it from us, how you finance your home renovation project is just as important as choosing cabinets, countertops, appliances, and flooring. So while cash is always the best option, there are a few “better than most” financing options you can use if your savings doesn’t quite cover the cost of your dream kitchen or bathroom remodel.

Before you start, consider if your remodel project makes overall financial sense for you. The best return on your investment will come with those projects that add value to your home when you are looking to sell. While you won’t make back your total outlay, many renovations can give you up to an 80% return on your investment. In fact, a 2019 home renovation
cost vs. value report says that while exterior renovations such as a new garage & entry doors top the list of popular home renovations with the best ROI, a kitchen remodel was third on the list. Real estate professionals say a kitchen is still one of the biggest selling points in a home, it’s important to homebuyers that the kitchen is something they can live in and enjoy.

As you are budgeting for your remodel project, also be sure to consider design trends and what’s currently “in” or “out.” Going too trendy with a home renovation project could affect how much you actually recoup when you sell. Consider going more timeless with major renovations such as kitchen cabinets, bathroom vanities, countertops, and backsplashes. These items are more costly to replace when new design ideas rise in popularity. Instead look for smaller ways to incorporate kitchen and bath trends that are easy and inexpensive to update as you grow tired of them. Remember, the overall goal in making a good financial decision when it comes to your remodel project is to ensure you are investing in the right spaces with the right design choices.

Home Equity Options

Now that you’ve decided where to invest in your home, and determined a budget and a professional contractor, let’s talk about how to finance your renovation project. As we mentioned, cash is king (by combining cash with a financing option, you can reduce the amount you pay in interest). If you are a little short, but have more than 25% or more home equity, consider borrowing off your home. These are good options if you’ve owned your home for a while or have seen its value rise significantly. If you do go this route, there are a couple of options to consider: a Home Equity Line of Credit and a Home Equity Loan. The line of credit is a revolving line of credit that works like a credit card. What’s nice about this option is you are only responsible for paying interest monthly at first, and you don’t have to take all the money out at once. Just use what you need as you go. The home equity loan is a lump sum loan that uses your home as collateral. A fixed loan, it sometimes has a higher interest rate than a line of credit, but both still offer some benefits at tax time.

Zero Percent Credit Cards

If you are very good about managing your finances, using a card with a zero percent introductory rate is another option for paying for your home renovation. Many have long-term options to pay back the balance. This also gives you the option to only draw against what you need. The key with this option is to make sure you understand the fees and terms of the offer, and can fully pay off the debt by the time the zero percent offer expires. Then be sure to set up automatic payments to chip away at what you owe.

Get a Personal Loan

Now with online lending portals, it has become easier for borrowers to get a personal loan from both national and local lenders. The rates for these types of loans can be much higher than home equity options, but if you have excellent credit you can get a much better rate. One advantage to a personal loan is you can get them very quickly, sometimes even the same day, much less time that it typically takes for the bank to approve a home-equity based option.