6 Ways to Finance a Home Remodeling Project

H3 Construction
February 22, 2019

Are you ready to take the first steps towards remodeling your home? Congratulations! But before you can get to the fun of conjuring up a vision for your future home design, it’s important to decide on how you’re going to finance this project. Remodels can be a significant monetary investment. As much as we might want to skip ahead to picking out new cabinets and deciding between paint colors, it’s important to establish a solid financial foundation. This will set you up for a successful home remodel from start to finish.

Looking for tips on how to finance a home remodeling project? Lucky for you, we are experts in the matter here at H3 Construction & Design! Here are our top 5 methods you can use to pay for your project of remodeling your dream home.


1. Refinance Your Mortgage

Have you owned your home for a while? Has your credit score improved since the initial purchase? Chances are you might be sitting on a mound of money! Every year, your home accrues more and more equity. Equity is the amount of your loan you’ve paid off plus how much the value of your home has increased. Refinancing is a way to change the terms of your mortgage in order to save you money. If your lender determines that you’re in a better financial situation than you were when you first purchased your home, they could lower your interest rate and your monthly payments. Lower monthly payments means more money in your pocket and more money to afford a better home remodel!

Here’s a quick rundown for the step-by-step process of how to refinance your home:

  1. Decide what your goal in refinancing is. Do you want a lower monthly rate? Or do you want to tap into your equity for a cash-out refinance? Decide this before going any further. 
  2. Find the bank or mortgage company that will offer you the best refinancing deal. 
  3. Submit a handful of applications to some of your top choices for lenders. 
  4. Once you know who will accept you for refinancing, select the lender that is willing to offer you the best deal. 
  5. The last step is to close on your new loan. This process will look similar to when you first made your home purchase official. You’ll pay any associated fees and sign new paperwork. 


2. Get a Home Equity Line of Credit

Let’s say you’ve already paid off your home loan. In that case, refinancing your home isn’t an option for you. Try a home equity line of credit instead—this allows you to tap into your home equity to pay for a home renovation without refinancing anything. Pretty cool, right? It works like a credit card but is secured by your home, so your interest rate won’t be nearly as high. Your home basically serves as collateral on this new loan. There are both positives and negatives to going this route. 

Pros 

  • Low, competitive interest rates
  • Less financial fees overall
  • You can deduct interest paid when you file your taxes under the Tax Cuts and Jobs Act of 2017

Cons

  • Your interest rate can change over time 
  • Tapping into your home equity could hurt you if home values decline
  • This second lien on your home gives lenders rights to your home along with the first mortgage lien if you miss payments


3. Take Out a Home Equity Loan

Another way you can leverage your equity is by securing a home equity loan. As a fixed-rate loan, this is a great alternative to the variable interest rate of the home equity line of credit. With this option, you’ll receive a lump-sum payment of cash to pay for any and all home remodeling projects. Unlike a home equity line of credit, you can’t draw out money as you need it like a credit card. The home equity loan is just that – a loan. And, of course, there are pros and cons to this option as well. 

Pros

  • Your loan has a fixated interest rate
  • You can use the money for any reason 
  • Lower interest rates than unsecured personal loans or credit cards

Cons

  • Interest rates start out higher than a home equity credit line
  • Missing too many payments can result in losing your home
  • Could come with high monthly payments 


4. Use a Credit Card

If you don’t qualify to use any of the options above, you can always lean back on using a credit card. Remember, credit cards are a little riskier than refinancing your home or taking out a bank loan. But sometimes it’s the best move if you’re deadset on making your home renovation dreams a reality. Just make sure you’re choosing the right card—one with rewards points and a low intro APR percentage. This method is ideal for small home improvements. It’s not a great idea to go into large amounts of credit card debt for major renovations unless you’ll have the cash to back it up ASAP.


Ask yourself these questions before applying for a new credit card:

  • What is the APR percentage? 
  • Does this card offer benefits? Will I use them?
  • Is there an annual fee?
  • Can I pay off my home remodel quickly? 
  • Do they have a late payment grace period? What are the late fees?
  • How will this affect my credit score?


5. Save, Save, Save

Want to renovate your home without taking out any loans? Save and get creative with how you earn extra money. This option is best for those willing to play the long game. Try earning extra cash through side hustles, part-time work, and creative projects such as an Etsy shop. It might take months or even years but eventually, you can earn your way towards a debt-free home remodel project. Once you set the wheels in motion, all you have to worry about is getting your project done – no need for the added stress of variable interest rates and looming monthly payments! 

Some more money management tips:

  • Create a budget and stick to it
  • Sell unwanted items online or at consignment stores
  • Rent a room out on Airbnb or VRBO
  • If you have a partner, budget together
  • Work towards paying off any current debt

Go With a Local Remodeler

Once you work out how you’re going to finance your renovation project, the fun can begin! The next step is to nail down a contractor you can trust to bring your vision to life. Our team at H3 Construction and Design is poised and ready to help you build the home of your dreams! We take on projects of any size and have been called one of the best home remodeling companies in Northern Colorado—give us a call today at 970-515-2264 or contact us through our website!

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504 West Eisenhower Blvd, Suite 3,
Loveland, CO 80537
Phone: 970-515-2264
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