How to Finance Home Renovation? Explore Your Best Options

by Joe Mahlow • Updated on May. 11, 2025

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How to Finance Home Renovation is a “search query” many homeowners face when dreaming of updating their living space.

Dreaming of a kitchen that doesn't look like it's stuck in the 90s? Bathroom tiles falling off the wall? Or maybe you just want that extra bedroom you've been planning for years?

We get it – home renovations are exciting but the price tag? Not so much.

Let's dive into how real people are making their home dreams come true without emptying their bank accounts.

Why Financing a Home Renovation Is Such a Pain

Let's be real – home renovations are expensive. Like, jaw-droppingly expensive.

According to HomeAdvisor, the average kitchen remodel now costs a whopping $25,656, and bathroom renovations typically run between $10,000 to $35,000.

Mark from Seattle knows this all too well. "We wanted to update our 30-year-old kitchen. I nearly fell off my chair when contractors started quoting $45,000. Where was I supposed to find that kind of money?"

Financial concerns around home renovation are incredibly common.

In fact, about 56% of homeowners report delaying their renovation projects specifically because of financial concerns, according to a 2023 survey by Houzz.

Figuring out how to fund your vision is often the biggest hurdle. The financial struggle is real:

Savings often aren't enough for major projects
Regular income can't cover big one-time expenses
Unexpected costs pop up (contractors find water damage, anyone?)
Material prices have gone up 18% since 2021, according to the National Association of Home Builders

So how are regular folks managing to transform their homes? Let's explore your best options.

How to Finance Home Renovation

Here are the key financing methods we'll explore:

Home Equity Loan
Cash-Out Refinance
Home Equity Line of Credit (HELOC)
Personal Loans
Credit Cards
Government Loans
DIY Financing

Time to discuss these one by one.

boost your credit score before getting a loan

Home Equity Loan: Borrow Against Your Property's Value

One of the most popular ways to finance home renovations is tapping into your home's value with a home equity loan.

What Is a Home Equity Loan?

Think of it as a second mortgage. You're borrowing against the equity you've built in your home – the difference between what your home is worth and what you still owe on your mortgage.

Sarah and Tom from Atlanta used this option for their basement renovation aurora. "After owning our home for 8 years, we had about $80,000 in equity. We took out a $40,000 home equity loan for a full basement remodel including a home office and guest bedroom," Sarah explains.

Why People Love Home Equity Loans

Lower interest rates: Because your home secures the loan, you'll typically get much better rates than unsecured loans. The average home equity loan rate is currently around 7.5%, compared to 12-24% for personal loans and credit cards.
Fixed payments: Unlike some other options, your monthly payment stays the same, making budgeting easier.
Tax benefits: The interest may be tax-deductible if you use the money for home improvements (always check with your tax advisor).

The Downsides

Your home is collateral: If you can't make payments, you could lose your house. This isn't a small risk.
Closing costs: Expect to pay 2-5% of the loan amount in fees.
Takes time: The approval process can take 2-6 weeks.

According to Bank of America, about 44% of homeowners choose home equity loans for major renovation projects over $20,000.

Cash-Out Refinance: Reset Your Mortgage, Get Cash

How Refinancing Works for Renovations

With a cash-out refinance, you replace your current mortgage with a bigger one and pocket the difference in cash.

Jason from Phoenix used this method when mortgage rates dropped in 2021. "I had a 4.5% mortgage rate, and rates had fallen to 3%. I refinanced my $250,000 mortgage for $300,000, got $50,000 in cash for our kitchen renovation, and my monthly payment only went up by $75."

When Refinancing Makes Sense

If current interest rates are lower than your existing mortgage rate
When you plan to stay in your home for at least a few more years
For larger renovation projects (typically $50,000+)

The Potential Pitfalls

Extends your loan term (usually back to 30 years)
Closing costs can be 3-6% of the loan amount
Process can take 30-45 days

Research insights: Approximately 30% of cash-out refinances are used for home improvements.

Home Equity Line of Credit (HELOC): Flexible Borrowing Power

A HELOC works like a credit card, but it's secured by your home. You get approved for a maximum amount and can borrow, repay, and borrow again as needed.

Lisa from Chicago chose this option for her ongoing home updates. "I got approved for a $75,000 HELOC but only use what I need when I need it. We did the bathroom last year for $15,000, and now we're using another $20,000 for the kitchen. I only pay interest on what I actually borrow."

Why HELOCs Are Popular

Flexibility: Only borrow what you need when you need it
Interest-only payments: During the draw period (typically 10 years), you can make interest-only payments
Good for projects in phases: Perfect if you're renovating room by room over time

The Risks

Variable interest rates: Your payments can go up if rates rise
Temptation to overspend: Having access to a large credit line can lead to borrowing more than planned
Potential for foreclosure: Like other home-secured loans, failing to repay puts your home at risk

Personal Loans: No Collateral Required

If you don't want to use your home as collateral or don't have enough equity, personal loans are another option.

How Personal Loans Work for Renovations

These are unsecured loans from banks, credit unions, or online lenders like Rise Credit. You get a lump sum and repay it in fixed monthly installments.

Michael from Boston used a personal loan for his bathroom renovation. "I only needed $12,000, and I didn't want to touch my mortgage or deal with the paperwork of a home equity loan. I got approved online in 24 hours and had the money in my account two days later."

When Personal Loans Make Sense

For smaller renovations (typically under $50,000)
When you need the money quickly
When you don't have much home equity or don't want to use it
When you value a simple application process

The Drawbacks

Higher interest rates: Expect to pay 8-36% depending on your credit score
Shorter repayment periods: Usually 3-7 years, making monthly payments higher
Loan amount limitations: Most lenders cap personal loans at $50,000-$100,000

According to LendingTree, the average personal loan for home improvements is about $16,000.

Credit Cards: For Small Projects or Emergencies

Credit cards can be an option for smaller renovations or to cover unexpected costs during a project.

Smart Ways to Use Credit Cards for Home Improvements

Rachel from Denver put her $8,000 bathroom update on a credit card – but not just any card. "I applied for a card with a 0% intro APR for 18 months. I put all the materials and labor on the card and set up a payment plan to pay it off before the promotional period ended. I basically got an interest-free loan."

When Credit Cards Make Sense

For small projects under $10,000
When you can qualify for a 0% introductory APR offer
When you have a plan to pay off the balance quickly
For earning rewards or cashback on renovation expenses

The Big Warnings

Sky-high interest rates: The average credit card interest rate is currently around 20%
Debt can spiral quickly: Carrying balances month to month can make your renovation much more expensive
Credit score impact: High utilization can lower your credit score

According to a survey by Experian, about 23% of homeowners use credit cards to finance at least part of their home renovations.

Government Loans: Special Programs You Should Know About

The government offers several renovation loan programs that many homeowners don't know about.

FHA 203(k) Rehabilitation Loan

This loan lets you finance both the purchase (or refinance) of a home and the cost of renovations in a single mortgage.

James and Maria used this when buying their fixer-upper. "The house needed about $45,000 in repairs. The 203(k) loan let us roll that into our mortgage instead of coming up with cash after already spending everything on the down payment."

Other Government Programs

VA renovation loans: For military service members and veterans
USDA rural development loans: For homes in eligible rural areas
Local government programs: Many cities and counties offer low-interest renovation loans for qualified homeowners

According to the FHA, renovation loans have increased by 19% in the past two years as more homeowners discover these options.

DIY Financing: Creative Ways People Are Making It Work

Not everyone goes the traditional route. Many homeowners are getting creative with financing their renovations.

The "One Room at a Time" Approach

Carlos and Emma from Portland are renovating their entire house on a cash basis. "We save $500 every month in our renovation fund. When we have enough for one project, we do it, then start saving for the next. It's slower, but we sleep better knowing we don't have debt."

Other Creative Approaches

Family loans: About 14% of millennials report borrowing from family for home improvements
Cash windfalls: Using tax refunds, work bonuses, or inheritances
Side hustles: Some homeowners take on extra work specifically to fund renovation projects
Sweat equity: Doing some of the work yourself can dramatically reduce costs

How to Choose the Right Financing Option for Your Renovation

With so many options, how do you pick the right one? Here's a simple framework:

Project size matters: For projects under $10,000, consider saving cash, using 0% APR credit cards, or personal loans. For $10,000-$50,000, personal loans or home equity products make sense. For $50,000+, home equity loans, HELOCs, or cash-out refinances are typically best.

Consider your timeline: Need to renovate immediately or can you wait and save? Emergency repairs might require immediate financing, while cosmetic updates could wait until you save more.

Evaluate your equity: How much equity do you have in your home? Most lenders require you to maintain 15-20% equity even after taking a loan.

Check your credit score: Better scores mean better rates. If your score is below 700, it might be worth spending a few months improving it before applying for renovation financing.

Calculate the ROI: Will the renovation increase your home's value? Kitchen and bathroom updates typically return 70-80% of their cost in home value, according to Remodeling Magazine's Cost vs. Value report.

Real People, Real Renovation Financing Stories

Let's look at how real homeowners made their renovation dreams happen:

The Kitchen Upgrade: Home Equity Loan Win

The Johnsons needed $35,000 for a complete kitchen remodel. With excellent credit and 40% equity in their home, they qualified for a home equity loan at 6.5% for 10 years. Their monthly payment is $397, and they'll pay about $12,600 in interest over the life of the loan – but their home value increased by approximately $28,000.

The Multi-Room Renovation: HELOC Success

The Garcia family wanted to update several spaces over three years. They opened a $100,000 HELOC and drew funds as needed: $25,000 for the master bath, $45,000 for the kitchen a year later, and $15,000 for flooring in year three. The flexible borrowing matched their phased approach perfectly.

The Quick Bathroom Fix: Personal Loan Solution

Single homeowner Alex needed a $12,000 bathroom update due to water damage. With limited equity but good credit, Alex secured a personal loan at 9.5% for four years. The monthly payment of $301 fit the budget, and the bathroom was completed in just three weeks.

Comparison and Summary of Home Renovation Financing Options

Choosing how to pay for your home renovation is just as important as planning the project itself. With so many financing options available, it can be overwhelming to figure out which one fits your needs best. That’s why we’ve created a simple comparison table below.

This table breaks down the most common financing options for home renovations. It highlights key features like interest rates, repayment terms, and what type of homeowner each option is best for. Use it as a quick guide to help you decide which path makes the most financial sense for your situation.

Take a look at the table below before making your final decision—this could help you save money and avoid stress down the road.

You Have Options in Financing Home Renovation

Home renovations can transform not just your living space but your quality of life. While financing can be challenging, understanding all your options helps you make the best choice for your situation.

Remember:

More equity = more (and better) options
Better credit = lower interest rates
Patience often saves money
Always get multiple quotes for both the renovation work and the financing

With the right planning and financing strategy, that dream kitchen, spa-like bathroom, or additional bedroom is within reach. Y

Have you recently financed a home renovation? What worked for you? Share your experience in the comments!