Before you embark on a home remodel or home improvement project, you should carefully weigh the finance options. While nowadays many payment and financing options are available, the one you choose depends on the overall cost of the project, duration, your available money, equity you have in your home, and whether there will be other home improvement projects anytime soon. Let’s expand the most popular financing options.


Those who have set aside enough cash can pay for the home improvement project outright. Avoiding financing complete allows you to avoid finance charges or interest, which saves you a lot of money. Also, as you don’t have to use the home as collateral for paying the loan back, there’s no risk of losing the home to foreclosure. Besides, if you plan on selling the home, paying the upgrades with cash can have a higher ROI than if you use a loan option.

Home equity loan

A home equity loan is a financing option where you put your house as collateral, similar to a mortgage. With this type of loan, you borrow against the value of your house, up to the amount of existing mortgage. The good thing is that the borrowed amount is fixed, which makes this option perfect for financing one-time projects. The interest rate is also fixed, which is a plus if you think interest rates will rise in the near future. As a final benefit, the interest you pay on a home equity loan for certain home improvement projects is tax-deductible. You can contact a home loan broker for professional guidance.

Unsecured personal loan

The basic of an unsecured personal loan is that you borrow money without putting your home as collateral. If you fail to pay your loan, your home is safe from foreclosure. In some cases, you can get a personal loan from a family member, while banks and other financing institutions also offer unsecured loans, but usually for small sums, rarely above $10,000. However, you should think twice before you take a payday loan or personal loans provided by non-banking parties, as the interest rates can be insane.

FHA loan

An FHA loan is a mortgage issued by an FHA-approved lender and insured by the Federal Housing Administration (FHA). Designed for low-to-moderate income borrowers, FHA loans require a lower minimum down payments and credit scores than most of the conventional loans. Understanding the FHA loan requirements well before you begin shopping for a home will help make the whole process much easier.

Credit card

For projects that cost anywhere from a few hundred to a couple of thousand dollars, you should consider putting it on your credit card. Although credit card rates can sometimes be quite steep, there are no lean fees of closing costs. If you’re not sure which credit card is best for your financing needs, check out this free credit card comparison, which allows you to quickly compare a range of credit cards, alongside their perks such as low rates, biggest cash backs, or promotional rewards. If you can pay off the entire balance in several months, a credit card is probably the best option for you.


There’s also an option where you refinance your original mortgage for a larger amount and get the difference back in cash. As with other types of home loans, there are fees and closing costs, however, if you have a larger project at hand, this option might be what you’re looking for, especially if interest rates are low and home prices are on the rise.

Avoiding contractor financing

Most home improvement experts will tell you that getting financing from your contractor or using a lender recommended by them should be your last option. It’s not a new thing that dishonest contractors get deals from 3rd-tier lenders which are burdened with fees and hidden costs. Your best course is to negotiate the project price with the contractor and get financing elsewhere. 

Each of the financing options comes with its own set of advantages and downsides, many of which become evident only when you take a deeper interest in any of them. Banking loans and credit cards are not made the same, so make sure to choose the one that best suits your financial situation.


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