How to Pay for Home Renovations: 4 Options to Fit Your Needs
Feb 14, 2023Planning a Home Renovation? Here's what you need to Know About how to pay for home remodelinG.
Homeowners are making it clear: when the housing market is challenging, they’d rather remodel than buy a new home.
According to the Harvard Joint Center for Housing Studies, home improvement spending grew a whopping 43% between 2019 and 2022 to $472 billion. This growth was fueled by lifestyle changes, high mortgage interest rates, and rising home prices as homeowners weighed their remodel-or-move options.
Read More: Take the “Should I Remodel or Move?” Quiz
How to Pay for Home Renovations
But remodeling, even when it’s the right choice, is a big investment and comes with its own questions. First and foremost: How to pay for home renovations.
Investing in your home is a big decision, and finding the right home improvement financing option for you and your family can pave the way for a successful project.
Since everyone’s financial situation is different, we’ve compiled a pros-and-cons list of the most frequently used financing options we see at Improveit. Take a look at the list below to see which option makes the most sense for you and your family.
1. Save Up, Then Spend: how to pay for renovations with Cash
Pros: Avoiding interest and fees is the most advantageous aspect of paying cash for home improvements. By setting aside money on a regular basis, you can save up for your project a little at a time without taking a large chunk out of your regular budget.
Cons: This method of payment can take a long time depending on how much money you’re able to sock away each month. Since remodeling costs can increase from year to year, you may end up paying more for the same materials by using this method.
2. FinancE Your Project: Use Your Remodeler's Promotional Rates
Pros: Financing allows you to spread out the cost of your project into manageable monthly payments that fit your budget. Many remodelers work closely with lenders to offer a financing options with low interest and low monthly payments.
Depending on your financial situation, working with a lender through your remodeler will often result in a better interest rate than if you paid with a regular credit card.
Cons: Unlike paying with cash, financing your remodel will likely include interest to pay at some point during the life of the loan.
Qualifying for project financing is easy and can usually be done at your kitchen table with your remodeler, but may affect your credit score depending on how the lender pulls your credit report. Improveit uses a “soft pull” method, but be sure to check with your remodeler before moving forward.
3. Let Your Home Pay for Itself: how to pay for home remodeling with Equity
Pros: Home equity loans and home equity lines of credit (HELOCs) are two ways to use your home’s value to pay for expenses like home improvements. Rising home values means many homeowners have more home equity than ever, potentially increasing your borrowing ability.
HELOCs and home equity loans usually have lower interest rates than other loan types, as well as long repayment timelines, both of which help you fit the cost of a remodel into your budget.
Learn More: How to Use Home Equity to Pay for a Remodel
Cons: HELOCs and home equity loans can put your home in jeopardy if you don’t pay as agreed. You’re using your home as collateral, so defaulting on these loans means the bank could put your home into foreclosure to recoup what you owe them.
Lenders will pull credit reports as part of the lending process for these loans, and you may not be allowed to use the full amount of your available equity. Most banks will allow you to borrow up to 85% of your equity, so take this into account when calculating the cost of your home improvements vs. the amount you’ll be able to borrow.
4. Charge It: Pay for Home Improvements with a Credit Card
Pros: Putting your home improvement project on a credit card lets you pay a little bit toward the balance each month so payments fit comfortably in your budget.
If you use credit cards that allow you to collect points, a remodeling project can help you build up your points balance to be redeemed later.
Cons: Big investments like home improvements can require a high credit limit, and using up a lot of your available credit can lower your credit score and leave less credit available should you need your card in an emergency. Additionally, credit cards usually have very high interest rates. Forbes says the average credit card interest rate is 23.56% as of early 2023.
Still wondering how to pay for home renovations?
Getting your financing questions answered is often the first step to improving your home with confidence. After all, once you understand how home renovations will impact your budget, the real fun of designing your kitchen, refreshing your bathroom, or updating your home’s curb appeal can really begin!
At Improveit, we’re here to be your trusted advisors and lead you through the entire remodeling process so you can improve your home with confidence. Our team has great relationships with several lenders and can help you understand all your financing options, including approximate monthly payments for the project you’re considering. Learn more on our Financing page, or use the form below to schedule a no-obligation appointment today!
When you’re ready to start your project, our design consultants can get your financing approved right at the kitchen table and you’ll be on your way to an affordable, beautiful home improvement.
