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5 Best Ways to Pay for Home Improvements

Sprucing up your home can help you get the most out of your space—and might even increase your property value. Over three-quarters of homeowners tackle multiple home projects each year, according to the Home Improvement Research Institute. Costs vary widely depending on the scope of the project. Whether it sets you back $100 or $10,000, you’ll want to prepare your finances. Here are five of the best ways to pay for home improvements.

1. Cash

If you have sufficient funds in your savings account, you could draw on that money to cover home improvement costs.

Pros

• You won’t accumulate new debt.
• You may get a discount from your contractor.
• It’s fast and easy.

Cons

• You could deplete your savings.
• You might not have enough cash.
• It could take away from other financial goals.

2. Personal Loan

A personal loan can provide funding for home improvement projects. After you receive the money, you’ll repay it—with interest—over a predetermined amount of time.

Pros

• It provides upfront cash.
• You may have high borrowing limits.
• Your home isn’t used as collateral.

Cons

• Fees may apply.
• Interest rates can be high.
• Repayment terms can be short.

3. Credit Card

This is a line of credit you can draw on as needed. Whenever you add a charge, that amount is tacked onto your balance. You’ll be charged interest if you carry a balance from one billing cycle to the next.

Pros

• It’s accessible.
• You could earn rewards.
• It can help your credit.

Cons

• Interest can add up.
• Your credit limit might not be high enough.
• A big charge could hurt your credit.

4. Home Equity Loan

Home equity is the amount of your home’s value you actually own based on your home’s value and outstanding mortgage balance. A home equity loan uses your home as collateral and allows you to borrow up to 75% to 85% of your equity. You’ll then repay it with fixed monthly payments.

Pros

• It could unlock a lot of money.
• Interest rates are typically lower than other options.
• Interest may be tax-deductible.

Cons

• Closing costs come with the territory.
• You’re reducing your home equity.
• Your home is at risk.

5. Home Equity Line of Credit (HELOC)

Like a home equity loan, a HELOC is secured by the equity in your home. But instead of receiving a lump sum of cash, you’ll have access to a credit line you can borrow against during your HELOC’s draw period. You can usually borrow anywhere from 60% to 85% of your home’s assessed value (minus your remaining mortgage balance).

Pros

• You can borrow only what you need.
• Interest rates are competitive.
• Your interest may be tax-deductible.

Cons

• Interest rates are often variable.
• Fees may apply.
• Your home is collateral.

Should You Finance Home Improvements?

Financing home improvements can enable you to get the job done, but there are some important things to think about:

• What will your monthly payment be?
• What is the interest rate?
• Is the interest rate fixed or variable?
• How long is the repayment term?
• Are there any fees that could increase your costs?
• Can your budget absorb a new monthly payment?
• Will your home be at risk if you fall behind on your payments?

Also consider how new debt could impact your credit score. For example, using more than 30% of a credit card limit could work against you, but making on-time payments could actually improve your credit score. What matters most is demonstrating that you know how to use credit responsibly.

The Bottom Line

Home improvements can get pricey, especially if you’re doing substantial work. One way to pay for home renovations is to finance some or all of your costs. If you take this route, make sure you can financially handle a new debt payment. Falling behind on your payments could hurt your credit—and potentially put your home at risk.

Making debt payments as promised is an important part of maintaining healthy credit. It can help improve your credit score and show future lenders that you’re a creditworthy borrower. You can check your credit score and credit report for free with Experian.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We’re here to help you find the best financing options for your home improvement projects.

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