If you're on a Galaxy Fold, consider unfolding your phone or viewing it in full screen to best optimize your experience.
If your home is your castle, but your castle can use a little sprucing up, you may be looking for ways to pay for the updates.
Should you take out a home improvement loan, refinance using a renovation mortgage, or is there another kind of renovation loan that will work? Should you borrow the money at all, or would it be better for you to pay cash for a home renovation project?
As a homeowner, it seems there are always decisions to make, even when it comes to deciding whether a home renovation loan is your best move. Here, we've outlined everything you need to know about renovation financing.
Whether you're turning a dank old basement into a home theater, installing a new pool, or creating a kitchen a chef would be glad to call their own, a home renovation allows you to put your personal stamp on how your castle looks and functions.
Wondering how to pay for home renovations? Fortunately, there are plenty of options for financing home renovations.
Home remodel financing doesn't have to be complicated. If paying cash is not in the cards, here are some of the ways you can finance home renovations:
A personal loan could be the best way to finance home improvements if you're looking for a low-risk means of borrowing. (Lenders can't repossess your home if you fail to make payments on an unsecured loan.)
Get the best rates and terms to fit your needs. Here are a few loans we'd like to highlight, including our award winners.
The best personal loans are available for up to $100,000 at:
The lowest rates offered by lenders are reserved for highly qualified borrowers. If your credit score is not currently as high as you would like it to be, your rate will be higher. However, repaying a personal loan as promised will strengthen your credit score.
A HELOC often has a lower interest rate than other types of loans because it uses your home as collateral. If you borrow and repay any portion of the money, you are free to withdraw the repaid portion again later. You can withdraw funds from a HELOC for 10 years and have 20 years to repay.
If you miss payments, the lender has a legal right to repossess the property to recoup its losses. Paying for home renovations should never put your home at risk. Before relying on a HELOC, make sure you understand the terms of your loan -- and can make payments on time. Whether you get your HELOC from a bank or credit union, you'll typically pay 2% to 5% of the amount borrowed in closing costs. Closing costs vary though, so make sure to ask about them as you loan shop.
Home equity loans are another way to go about financing a remodel. Unlike a HELOC, home equity loans are distributed in one lump sum and normally repaid over five to 30 years. Sometimes referred to as a "second mortgage," a home equity loan allows you to use the equity you already have in your home to pay for upgrades. Depending on when you took out your original home loan, a home equity loan may carry a higher interest rate, but it is still a viable loan option. Like a HELOC, a home equity line of credit may include closing costs of 2% to 5% of the amount borrowed.
Refinancing your home involves taking out a new mortgage to pay off the old one. Depending on how much equity you have in your home, it is possible to "cash out" a portion of the equity when you refinance. This is referred to as a cash-out refinance.
For example, let's say your home is worth $300,000, and you owe $100,000 on your current mortgage. You refinance $150,000. In this scenario, $100,000 pays off the old mortgage, and $50,000 goes towards financing home renovations.
If your new refinance rate is much lower than your original interest rate, this method has another benefit. It's possible that your monthly mortgage payment can drop even if you "cash out" some of your equity. For some people, paying for home renovations through a cash-out refinance is a great way to invest in home improvements. Of course, current interest rates make it highly unlikely that you'll improve upon your current rate, but refinancing to lower your interest rate may be something you decide to do in the future.
Small upgrades and repairs can be made using a credit card. However, unless you have an unusually low fixed interest rate, credit cards are one of the most expensive ways to pay for home renovations. Even if you snag a 0% promotional APR, it will likely expire in 18 months or less. Home renovation loans offer much longer repayment terms. For this reason, credit cards should be saved for emergencies only.
The U.S. Department of Housing and Urban Development (HUD) offers a program called the FHA 203(k) loan. It allows you to include renovations in the amount financed for your mortgage, whether you're purchasing a home or refinancing your current mortgage.
The Federal National Mortgage Association (Fannie Mae) offers the HomeStyle Renovation Mortgage. Rather than take out a conventional (non-renovation) loan, a home buyer would take out the HomeStyle Renovation Mortgage. This loan gives the buyer enough money to buy the property and make renovations. All work must be completed by contractors approved by the mortgage lender.
HUD offers Title 1 Property Improvement Loans that can be used to finance a home remodel. For example, one can be used to pay for home repairs, alterations, and improvements. It can be used alone or in conjunction with the 203(k) loan.
If the home renovations you dream of are cosmetic, saving until you have enough to pay cash for the project can be wise. In many cases, cash is the best way to pay for home renovations. Instead of applying for financing, here are three benefits of saving up when it comes time to redo part of your home:
For these reasons, many homeowners consider cash to be the best way to pay for home improvements.
The first question to ask yourself is how much of a monthly payment you can afford.A loan officer can help you determine the best path forward, whether it's through a mortgage with a longer loan term, a cash-out refinance, or a government-backed refinance that rolls renovations into the total cost.
There's no reason to go through the trouble of financing a remodel if you're stressed about making monthly payments. Consider what you want to include in the remodeling project and how much you're willing to pay for each feature. For example, if you want to duplicate the rainforest shower that you once enjoyed at a resort, look into the price to determine whether it's worth it to you.
Since interest rates are on the rise, decide if you can wait to remodel. Finally, rate shop before settling on a lender. The perfect lender for you will offer the lowest interest rate and the best terms. Find the best financing for your home remodel before you start knocking out walls -- your wallet will thank you.
Financing home renovations is a good idea when you have enough money put away in an emergency savings account to cover bills for three to six months. It's also a good idea to have:
Financing home renovations is a bad idea when you are already cutting your monthly budget close. It's a bad idea when you're financing with a partner but are unsure the relationship will last. It's also a bad idea if:
Like all tough questions in life, whether or not you finance home improvements is up to you. The best you can do is to carefully look at your current situation, study your loan options, and, when you're ready, make a decision you can be happy with. Financing home renovations is a big step, and it's one you should take only if it's the right choice for you.
Whether you make improvements all at once or complete them as you can afford to, it's good to know that you're moving toward making a house your own.
We have guides to financing some specific home improvements. Click below to learn more about financing your project:
Looking for a personal loan but don’t know where to start? Our favorites offer quick approval and rock-bottom interest rates. Check out our list to find the best loan for you.
The simple truth is this: The interest rate is currently higher than it's been in more than 20 years. If you don't currently have cash in the bank, but your furnace is on the fritz or your basement is leaking, financing repairs may be a necessity. However, if you can wait until inflation cools and the Federal Reserve lowers the prime rate, you're likely to land a far better interest rate.
Any time you use your home as collateral, you run the risk of losing it to the lender. The primary reason lenders offer a lower interest rate on HELOCs is because they know they can recoup their losses if you fail to make payments.
No. In fact, there are some projects that can make your home less attractive to potential buyers. Projects like garage conversions and swimming pools can make your home harder to sell.
Our Loans Experts
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
Please note that this calculator is not personalized financial advice and should not be considered or used as such. Nor are we promising that by use of this calculator, will you be able to save more money, preserve wealth, or otherwise.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
Please note that this calculator is not personalized financial advice and should not be considered or used as such. Nor are we promising that by use of this calculator, will you be able to save more money, preserve wealth, or otherwise.
Citi Personal Loan disclaimer:
**Rates as of 05-31-2024. Your APR may be as low as 11.49% or as high as 20.49% for the term of your loan. The lowest rate quoted assumes excellent credit and a loan term of 24 or 36 months. Your APR will depend on a variety of factors including your creditworthiness, term of loan, and existing relationship with Citi. For example, if you borrow $10,000 for 36 months at 15.99% APR, to repay your loan you will have to make 36 monthly payments of approximately $351.52.
There is a 0.5% APR discount if you enroll in automatic payments at loan origination. Additionally, existing Citigold and Citi Priority customers will receive a 0.25% discount to the interest rate. If you are in default, your APR may increase by 2.00%. No down payment is required. Rates subject to change without notice.
You must be at least 18 years of age (21 years of age in Puerto Rico). Co-applicants are not permitted. Loan proceeds cannot be used for post-secondary educational or business purposes.
If you apply online, you must agree to receive the loan note and all other account disclosures provided at loan origination in an electronic format and provide your signature electronically.
Credit cards issued by Citibank, N.A. or its affiliates, as well as Checking Plus and Ready Credit accounts, are not eligible for debt consolidation, and Citibank will not issue payoff checks for these accounts. If you are unsure of the issuer on the account, please visit https://www.citi.com/affiliatesproducts for a list of Citi products and affiliates.
*Upstart Loan Disclaimer
The full range of available rates varies by state. The average 3-year loan offered across all lenders using the Upstart platform will have an APR of 21.97% and 36 monthly payments of $35 per $1,000 borrowed. For example, the total cost of a $10,000 loan would be $12,646 including a $626 origination fee. APR is calculated based on 3-year rates offered in the last 1 month. There is no down payment and no prepayment penalty. Your APR will be determined based on your credit, income, and certain other information provided in your loan application.
*SoFi Personal Loan Disclaimer
Fixed rates from 8.99% APR to 29.99% APR reflect the 0.25% autopay interest rate discount and a 0.25% direct deposit interest rate discount. SoFi rate ranges are current as of 02/06/2024 and are subject to change without notice. The average of SoFi Personal Loans funded in 2022 was around $30K. Not all applicants qualify for the lowest rate. Lowest rates reserved for the most creditworthy borrowers. Your actual rate will be within the range of rates listed and will depend on the term you select, evaluation of your creditworthiness, income, and a variety of other factors.
Loan amounts range from $5,000–$100,000. The APR is the cost of credit as a yearly rate and reflects both your interest rate and an origination fee of 0%-7%, which will be deducted from any loan proceeds you receive.
Autopay: The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. Autopay is not required to receive a loan from SoFi.
Direct Deposit Discount: To be eligible to potentially receive an additional (0.25%) interest rate reduction for setting up direct deposit with a SoFi Checking and Savings account offered by SoFi Bank, N.A. or eligible cash management account offered by SoFi Securities, LLC (“Direct Deposit Account”), you must have an open Direct Deposit Account within 30 days of the funding of your Loan. Once eligible, you will receive this discount during periods in which you have enabled payroll direct deposits of at least $1,000/month to a Direct Deposit Account in accordance with SoFi’s reasonable procedures and requirements to be determined at SoFi’s sole discretion. This discount will be lost during periods in which SoFi determines you have turned off direct deposits to your Direct Deposit Account. You are not required to enroll in direct deposits to receive a Loan.
Impact to credit score: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.