Remodeling your home can be a great way to change your living space without buying a new house. Whether your overgrown starter home needs an extension or you want to add luxury upgrades to your basic bathroom, a remodel can give you the home you want using the resources you already have.
One roadblock, however, can be cost: renovating or remodeling can end up being an expensive ordeal. Before you write off your chances of renewing your living space, consider these five methods of raising cash for your project. No matter what credit profile or financial situation you have, you can find a way to afford the changes your home needs.
- Taking out a home equity line of credit
If you own your own home, you may be eligible for a line of credit that ties to the equity you already have in your home. HELOCs are variable-rate loans that you can borrow against over time, and the terms of your HELOC will vary due to your creditworthiness. A home equity line of credit (HELOC) works best for those who have paid off most or all of their home’s mortgage.
You can expect to borrow up to 85 percent of your home’s value, minus whatever’s left on your mortgage. Since the amount you’ve already paid toward your mortgage will be used as the collateral for your loan, a HELOC won’t be an option for those who owe more than their home is worth. Remember that with a HELOC, your home is put up as security and can be forfeited to the bank if you don’t make your payments on time.
- Choosing a personal home improvement loan
A personal loan comes with less risk than a HELOC, so it’s a safer way to borrow for that new tile in the kitchen or an upgraded garage door. A personal home improvement loan is generally unsecured, meaning it’s only tied to your creditworthiness. With an unsecured loan, you won’t lose your house if something goes wrong. You also have more freedom on how to use the funds from this loan, including:
- Home repairs
- Renovation supplies
- Consolidating existing credit card debt
Homeowners often choose a personal loan because they don’t require collateral for approval and because they offer set monthly payments that can be paid off in a few years. With that lower risk level comes a lower loan amount: home improvement personal loans will generally be smaller than a HELOC.
- Borrowing from family or friends
Asking for money can be difficult, especially when you’re asking people you love. But turning to your friends and family for help funding your renovation may be worth considering. With a legally-sound contract in place for repaying the money, borrowing from your personal circle may be profitable for both parties. Your friend or family member will earn interest on the loan amount, and you will move one step closer to that dream addition.
If you have a solid relationship with someone who has expressed an interest in helping out, they may be a sound choice for financing that home remodel. For the sake of your relationship (and your financial security) make sure you create a contract that both parties are willing to honor.
- Finding a low-interest credit card
Credit cards can be a helpful way to finance purchasing the supplies and building materials you’ll need for your home renovation project. You may even qualify for a retail card to a home supply store, which come with cash-back rewards and big discounts on your home repair buys.
Unfortunately, not all builders and contractors take plastic, or they may charge an exorbitant processing fee. While it might be tempting to simplify your purchase with a cash advance from your favorite card, remember that this comes at a hefty price. Interest on cash advances can be 25 percent or more. If you choose a credit card cash advance, make sure you are prepared to pay the debt off quickly. Pay close attention to even the standard credit card APR as well. If you carry a balance month to month, you may end up paying high amounts of interest.
- Saving up your cash
This method of financing won’t cost you a cent in interest or origination fees, making it the only risk-free option on our list. If possible, saving up for a large expense is one of the most compelling financial options.
However, depending on the reason for the renovation, you may need to act quickly. Leaky pipes or a damaged roof can become huge problems if you let them go untreated. One other drawback to cash is inflation: the cost of building supplies can increase anywhere up to 30 percent in a given year, with new tariffs only driving up the costs. By the time you save up what you need, your project cost may have doubled.
To choose the right financing option, we recommend asking yourself the following questions:
- How much will I need to borrow?
- Do I want to put my home up for collateral?
- Will borrowing money from family or friends strain those relationships?
- Does my funding choice carry additional fees or penalties?
- Will I need a one-time loan or an ongoing line of credit?
- If I need additional repairs or upgrades in the future, do I have to apply for a separate loan or account?
- Do I need to consolidate other debts or pay for additional purchases?
With the right funding, you can act quickly to turn your current home into the house of your dreams. Your renovations should also raise your home’s value, giving you more equity and even making it easier to sell your home someday.
Linsey Knerl is a personal finance expert, author, public speaker and member of the ASJA. She writes for Upstart and has a passion for helping consumers and small business owners do more with their resources through awareness of the latest financial services.
