The Best Loan to Finance a Home Remodel

(Updated 5/11/2022)

The first step in making your home remodel vision a reality is to have a budget that fits your needs. Working with a set budget alongside your remodel partner is crucial in getting the result you want without breaking the bank. While it’s great to cover your remodel costs out of pocket, it’s not necessarily the only way to pay for your new basement, kitchen, or master bath. With home improvement and renovation loans, you can finance your home renovation to cover the cost of design and construction.

Here are some tips to get you thinking about loan options for your remodel.

Top 5 loan options to finance a home renovation

According to our trusted lender, Tom Yoswa, there are five main ways to finance a home renovation: HELOC, cash-out refinance, renovation loans, personal loans, and credit cards.

A quick overview of these options: 

  • HELOCs (Home equity lines of credit) – A great option if you have a lot of home equity. Check with your local bank or credit union; most of them offer equity lines up to 90% of the current value of your property. HELOCs often have interest only, and fixed payment options – the fixed product is referred to as a Home Equity Loan;  Rates are variable, meaning your payment can change based on current rates.
  • Cash-out refi’s – Refinance your property and pull cash out for your renovations.  Lenders offer these products to borrow up to 80% of your home’s current value.
  • Renovation loans – Conventional and FHA loans combine the renovations to your current mortgage, wrapping both into one new loan. With these loans, you are borrowing money based on the improved value of your property, not the current value. A great option if you don’t have enough equity for a HELOC or a cash-out to cover your remodel.
  • Personal loans – Unsecured loans where your home is not used as collateral. Rates might be higher, and your payback period is typically shorter than other options.
  • Credit Cards – Using credit cards is another way to finance your project.  You might need several cards to cover the price, be careful; rates are typically higher, and having several cards can impact your credit score!

Which Home Improvement Loan is Best to finance a home renovation?

The type of loan you choose depends on where you’re at with your credit score, income, current home equity, and the scope and estimated cost of your project. According to US News, a short-term personal loan is likely best for minor projects and updates. You will likely use a HELOC, a cash-out refinance, or a renovation loan for higher-cost projects like remodeling, basement finishes, and additions. Make sure you look into each option and weigh the current value of your home compared to the post-construction value. Again, if you have equity to cover the project, a HELOC or cash-out refi will work. If you don’t, a renovation loan might be perfect as you’re borrowing against the future value of your home. Investigate all of your options with an experienced lender!

Choosing the Right Home Improvement Lender

After choosing how to finance your home renovation, the next step is selecting the right lender to match your needs. According to US News, there are four major areas to consider when comparing lenders: customer service, APR, eligibility requirements, and loan amounts.

You want to ensure that you are eligible for the loan before wasting time and money applying for it. When researching, look up the minimum qualifications and see if you can get prequalified. You should also look at the lender’s maximum and minimum loan amount to see if that range fits your needs. Lastly, look into that company’s customer service quality and reputation!

Choose a Remodel Partner that Works With Your Budget

finance a home renovationBeyond the loan, working with a remodeling partner that works with your budget is essential to crafting a realistic design that fits the bill. When vetting out remodel companies at design consultations, ask:

  • Do you guarantee the price that’s quoted for me?
  • What does your final price cost? Does it cover materials and labor?
  • What other hidden costs should I be aware of during this project?
  • What happens if you come across an unforeseen cost during construction? Do you cover it?
  • How long will my warranty last post-construction?
  • When, in your process, do you collect a deposit or first payment?

With FBC Remodel, we present you with one guaranteed price before construction. We also ensure you love your design — you approve of your design’s look, feel, and layout before you spend a dime. If extra costs pop up that we don’t predict before the quote, we handle the cost!

We’d love to help you get your dream design within your budget. Get in touch with our team today to book a design consultation, and follow the button below to learn more about our process!

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