As Spring comes around many homeowners are looking to make updates,
repair, and remodels to home. There are various ways that you should plan to
pay for those costs. There are several lending options for home renovations,
depending on your financial situation and needs. Here are some common options:
How to Make Your Money Work for You: Cash vs. Investments
- Cash: if you have saved utilizing current checking and savings accounts can make sense for the updates
- Brokerage Accounts: sell stock from your account
- Security Based Line of Credit: some brokerage accounts allow you to keep your money fully invested. You can then use the account as collateral to take a line of credit against your investments. This allows you to keep your money fully invested and getting to take a loan at the same time.
Home Equity-Based Loans: What You Need to Know
- Home Equity Loan: A lump-sum loan using your home's equity as collateral, with fixed interest rates and payments. As of February 2025, the current interest rates for primary mortgages can range from 6-8% depending on your credit score, income, and other variables. This may not be the best option, especially if you have a low interest rate on your current mortgage.
- Home Equity Line of Credit (HELOC): A revolving line of credit secured by home equity, with variable interest rates and flexible withdrawal options. This option can provide flexibility with payments and withdrawals, as you do not have to pay interest until you use the line of credit.
Mortgage-Related Options
- Cash-Out Refinance: Replaces your existing mortgage with a larger one, allowing you to take the difference in cash for renovations. As above with a Home Equity Loan, you may have to refinance your primary mortgage to get cash out of your home.
- FHA 203(k) Loan: A government-backed loan that includes the cost of home renovations in your mortgage. Certain homes may qualify for this option and can have more favorable interest rates.
Unsecured Personal Loans vs. Credit Cards: Key Differences You Should Know
- Unsecured Personal Loan: A loan not tied to home equity, often with higher interest rates but no risk to your home.
- Credit Card: Best for smaller renovation costs, but high-interest rates can make it expensive. This option can make sense if your credit card has a 0% purchase or balance transfer offer. You can call your credit card company to determine if you have any offers on your credit cards.
Government and Energy-Efficient Loans
- Title I Home Improvement Loan (HUD): A government-backed loan for home improvements, available without home equity. There may be income restrictions for these types of loans, as always you will want to check with your lender to see if your home and your household income qualifies.
- PACE Loans (Property Assessed Clean Energy): Available in certain areas for energy-efficient upgrades, repaid through property taxes.
Contractor or Retailer Financing
Some contractors or home improvement stores offer
in-house financing, which can be convenient but may have higher interest rates.
Generally, you will find this for smaller loan or repair projects, often with
HVAC repairs and plumbers. Many contractors may work with preferred lenders to accommodate
their customers.
As always consult with your Private CFO® to determine which options
works best for you. A combination of these various options can help accomplish
the home updates and renovations of your dreams. The key is to also make sure
that your budget supports it and that you are not taking on too much debt to
accomplish the goal.
