Published in: Personal Loans | Sept. 6, 2019

What's the Best Way to Pay for Home Renovations?

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How can you fund your next big household project?

Maybe you're tired of staring at the aging cabinetry and outdated countertops that adorn your kitchen. Or maybe you're worried that your deck really will cave in the next time you attempt to eat outdoors. There are plenty of good reasons to invest in home improvements, whether your goal is to increase your property's resale value, enhance your quality of life, or both. But renovations cost money, so you'll need to consider the best way to pay for yours. Here are some options to think about.

Woman drilling some planks together.

Image source: Getty Images

1. Tap your savings

If you have money in a savings account you can use to fund your home improvements, then withdrawing that cash is your best bet. That way, you won't incur interest charges in the course of renovating your property, and you'll gain peace of mind by not taking on debt and having additional monthly payments hanging over your head.

That said, don't deplete your emergency fund to pay for work that’s being done on your home. In fact, don't even make a tiny withdrawal from that account. Your emergency fund should be saved for unplanned expenses only, and if you raid yours to fund renovations, you'll risk coming up short when an unavoidable bill pops up later on.

2. Borrow against your home

If you have enough equity in your home, you'll have the option to borrow against it to fund your renovations. You can do this in two ways -- with a home equity loan, or a home equity line of credit (HELOC). With the former, you borrow a preset amount of money up front, and then repay it over time. With the latter, you're given access to a certain amount of money, and you can make withdrawals against that line of credit as you need to. 

Qualifying for a home equity loan or HELOC is fairly easy, because your property is used as collateral. If you don't make payments on your loan, your lender can seize your home (which is a bad thing for you, but protection for your lender). As such, you might snag a pretty favorable interest rate on a home equity loan or HELOC. But only borrow what you can easily afford to pay back, because you really don't want to risk losing your home. 

3. Take out a personal loan

If you don't have enough equity in your home, or don't like the idea of borrowing against it, then you can take out a personal loan to pay for renovations. Qualifying for a personal loan, however, can be difficult. Since your property can't be used as collateral, you'll need strong credit to get approved, and even then, you're still likely to be hit with a higher interest rate than what a home equity loan or HELOC would get you. But if borrowing against your home isn't an option, this could be your next-best bet. 

4. Use your credit cards

Let's be clear: Charging home renovations on a credit card isn't the best idea, as you'll risk paying a ton of interest on that debt. But if you're desperate to get that work done (say, you have a bathroom that's basically unusable in its current state), and you can't borrow against your home or qualify for a personal loan, then credit cards may be your only option. If that's the case, proceed with caution, and keep your renovation costs as low as possible. 

Of course, if you have enough money in savings to pay for your renovations, but are also able to charge them on a credit card without incurring added costs (some contractors or companies charge extra for credit card usage), then it pays to do so. That way, you can rack up some reward points, and then pay your balance in full before interest starts accruing. 

Your goal in funding a home renovation project should be to walk away with as little debt as possible. If you’re not in a position to pay for your home improvements outright, it could make sense to put off that work for another year or two, boost your savings, and then cover your renovations with cash. That way, you won’t risk taking on debt that you’ll struggle to keep up with after the fact. 

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