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7 Financing Options for Home Improvement 

Written by Banks Editorial Team
Updated August 1, 2023
9 min. read
Written by Banks Editorial Team
9 min. read

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One of the crucial aspects of undertaking a home renovation is securing the necessary funds to turn your vision into reality. With a variety of financing options available, it’s essential to understand the basics of each method to choose the best fit. 

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Funding a Home Improvement Project

When you’re planning a home improvement project, funding is an essential aspect to consider. There are several options available to finance your project and meet your specific needs. They include cash savings, personal loans, home renovation or improvement loans, home equity loans or home equity lines of credit (HELOCs), cash-out refinances, credit cards and government loans.

If you have enough equity in your home, consider using a reputable lender to refinance your mortgage and take the cash you need to complete your home improvement project. You will not only have the funds to renovate your home, but also you may secure a better interest rate or lower your mortgage monthly payments. Top Flite Financial is a mortgage lender that caters to a wide range of consumers looking for home refinance loans, including those that may have credit challenges or have been turned down by traditional banks for a loan. Fill out this simple online form to review your options with no obligations with a lender expert from Top Flite Financial.

What is a Home Improvement Loan?

A home improvement loan is a form of financing you can use to fund renovations, repairs, or updates in your home. These loans are designed to help you increase your property’s value, enhance your living space, and improve your quality of life. There are different types of home improvement loans, including unsecured personal loans, home equity loans and federal financing programs. 

How Does a Home Improvement Loan Work?

A home improvement loan is a financial tool that helps you finance your home renovation projects. This type of loan can come in various forms, such as personal loans or home equity loans. The main purpose of these loans is to make it possible for you to improve your home’s value and overall quality without having to pay the entire cost upfront.

When you apply for a home improvement loan, lenders will evaluate your credit history, income, and other financial factors to determine your eligibility. Upon approval, the loan amount will be disbursed either directly to you or to the contractor handling your project. You can use the funds for a variety of projects, such as repairing your roof, updating your furnace, or even adding a new room to your home.

The loan term will typically vary by the lender and loan type. Your monthly payment will typically include both principal and interest.

7 Financing Options for Home Improvement

When it comes to financing your home improvement projects, you have multiple options available. Consider these seven options to fund your renovations and repairs:

1. Cash Savings


  • Minimize borrowing costs: By using cash savings for your home improvement projects, you can avoid the need for loans, interest payments, and associated fees.
  • Financial flexibility: Cash savings provide you with financial flexibility and peace of mind for any unexpected expenses that pop up during the renovation.


  • Deplete savings: Draining your savings account might impact your emergency fund, leaving you in a vulnerable situation during unforeseen expenses.
  • Delay goals: Using cash savings for home improvement can delay other financial goals, such as retirement savings, education funding, or investments.

How to Build Cash Savings

To create a healthy cash reserve for your home improvement projects, follow some practical tips that promote disciplined saving habits. Here’s how you can effectively build your cash savings:

  • Create a budget: Determine your monthly income and expenses, then set a reasonable savings goal to allocate a specific amount each month for your home improvement fund.
  • Reduce discretionary spending: Identify areas where you can cut back on non-essential spending and redirect the saved money to your home improvement savings.
  • Create automated savings: Set up automatic transfers to your savings account, ensuring consistent growth without the risk of forgetting or overspending.
  • Seek additional income: Explore opportunities for side gigs, freelancing, or part-time jobs to supplement your primary income and boost your savings rate.
  • Review and adjust: Periodically review your progress and adjust your savings strategy as needed to stay on track and reach your goal within the desired timeframe.

2. Personal Loans


  • Fixed interest rates: Personal loans often come with fixed interest rates, which means your monthly payments will remain consistent throughout the loan term. This can make it easier for you to budget and plan for your expenses.
  • No collateral: Unlike home equity loans or lines of credit, personal loans do not require you to put up your home as collateral. This can be an appealing option if you are not comfortable leveraging your home for the loan.
  • Flexible loan amounts: Personal loans allow you to borrow the exact amount you need for your project, with loan amounts typically ranging from a few thousand to tens of thousands of dollars.


  • Higher interest rates: Personal loans tend to have higher interest rates compared to other financing options like home equity loans. This means you might end up paying more in interest over the life of the loan.
  • Shorter repayment terms: Personal loans often have shorter repayment terms, usually between one and seven years. This can result in higher monthly payments compared to longer-term loans.
  • Limited tax benefits: Unlike the interest paid on home equity loans, the interest on personal loans is not tax-deductible for home improvement projects.

How to Get One

To obtain a personal loan for your home improvement project, follow these steps:

  1. Evaluate your needs: Determine how much money you need for your project, and consider whether a personal loan is the best financing option for you.
  2. Check your credit: Your credit score will play a significant role in determining the interest rate and terms of your loan. Make sure your credit is in good shape before applying.
  3. Shop around: It’s important to compare offers from multiple lenders to find the best rates and terms for your needs.
  4. Gather necessary documents: Before applying, gather necessary documentation such as proof of income, tax returns, and recent bank statements.
  5. Submit your application: Once you have compared offers and gathered the necessary documents, move forward with your chosen lender and submit your application.

3. Home Renovation/Improvement Loans


There are several benefits to getting a home improvement loan:

  • Competitive rates: Depending on your credit score, the loan rates can be quite competitive compared to credit cards or other financing options, saving you money on interest.
  • Flexible use: The loan can be used for a variety of home renovations, including repairs, updates or expansions.
  • Quick approval: Home improvement loans typically offer a simple online application process, allowing you to receive a credit decision quickly, sometimes even within the same day.


Consider these potential drawbacks before applying for a home improvement loan:

  • Loan fees: Some loans may come with origination fees, which could increase the overall cost of borrowing.
  • Monthly payments: The loan will increase your monthly financial commitments, which may strain your budget or limit future qualifying for other loans.
  • Unsecured loans: Depending on the type of loan you choose, it might be secured by your home, putting you at risk of losing your property if you default on your payments.

How to Get One

Follow these steps to obtain a home improvement loan:

  1. Assess your needs: Estimate the cost of your renovation project, considering additional expenses like required permits and professional fees.
  2. Check your credit: Review your credit report and score, as they’ll impact your eligibility and interest rate. Fix any errors and take steps to improve your credit score if needed.
  3. Research lenders and loan types: Compare various lenders, including banks, credit unions, and online lenders. Also, consider different types of home improvement loans, such as personal loans, home equity loans, or home equity lines of credit (HELOC).
  4. Apply for the loan: Gather necessary documentation, such as proof of income and employment and complete the loan application process with your selected lender.
  5. Review and accept the loan terms: Carefully read the loan terms and conditions, then sign the loan agreement if you’re satisfied with the offer.

4. Home Equity Loans and HELOCs


  • Lower interest rates: The biggest benefit is that both options have lower interest rates compared to personal loans and credit cards.
  • Tax benefits: The interest on these loans may be tax deductible.


  • Collateral requirements: You are using your home as collateral, meaning that if you fail to make payments, you could lose your home.
  • Variable rates: Home equity loans have a set repayment schedule, while HELOCs come with variable interest rates, making it more difficult to budget for repayments.
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How to Get One

To get a home equity loan or HELOC, follow these steps:

  1. Check your credit score: A higher credit score will increase your chances of getting approved and obtaining a favorable interest rate.
  2. Determine how much equity you have: Calculate the difference between your home’s current market value and the outstanding mortgage balance.
  3. Research loan options: Compare offers from multiple lenders and consider whether a home equity loan or HELOC is better for your specific needs.
  4. Gather required documentation: Prepare financial documents such as tax returns, bank statements and insurance documentation.
  5. Apply for the loan: Complete a loan application with your preferred lender and wait for approval.

5. Cash-out Refinance


  • Lower interest rate: Cash-out refinances often come with lower interest rates compared to other financing options, such as personal loans or credit cards, making them more cost-effective in the long run.
  • Tax-free cash: The cash you receive from a cash-out refinance is usually tax-free, helping you save more money.
  • Consolidation of debt: By paying off your existing mortgage, you can consolidate your monthly payments, making it easier to manage your finances.


  • Closing costs: Similar to a regular refinance, a cash-out refinance comes with closing costs, which can affect the amount of cash you receive for home improvements.
  • Longer repayment term: By refinancing your mortgage, you may end up prolonging your repayment period, potentially resulting in more interest payments over time.
  • Risk of foreclosure: When converting your home equity into cash, be cautious not to overextend yourself. You could lose your home if you’re unable to make timely payments.

How to Get One

To get a cash-out refinance, follow these steps:

  1. Understand your needs: Determine how much cash you require for your home improvement project and calculate the difference between your current mortgage balance and the new loan amount.
  2. Assess your eligibility: Lenders typically require a minimum credit score, sufficient home equity, and a steady income for approval. Check your eligibility before applying.
  3. Shop around for rates: Compare interest rates from multiple lenders to find the best deal. A cash-out refinancing calculator can help you estimate the potential costs and benefits.
  4. Submit an application: Once you’ve chosen a lender, submit a formal application for a cash-out refinance, providing all necessary documentation and fees.
  5. Close the deal: After your application is approved, sign the final documents and your existing mortgage will be paid off. You’ll receive the cash difference for your home improvement needs.

6. Credit Cards


  • Cardholder perks: Many credit cards offer rewards points or cash back for purchases, which can help offset the cost of your project.
  • Purchase protection and interest savings: Some credit cards provide extended warranties, purchase protection, and zero-interest introductory rates on purchases.


However, there are some potential downsides to using a credit card for home improvement financing. If you don’t pay off the balance before the interest-free period ends, interest can accumulate quite fast, given that credit card interest rates can be quite high. This could end up costing you more in the long run.

Additionally, relying too much on credit for financing projects might negatively impact your credit score. Using a significant portion of your available credit can increase your credit utilization ratio, which could lower your credit score if it exceeds 30%.

How to Get One

To get a credit card suitable for financing your home improvement project: 

  1. Check your credit score. The higher your score, the more likely you’ll be approved for a credit card with favorable terms.
  2. Explore your options: Research different credit cards and compare their rewards, interest rates, and benefits, focusing on those that are geared towards home improvement or provide features that fit your project’s needs.
  3. Submit an application: Apply for the credit card online or at a local branch of the issuing bank. Make sure to provide accurate and complete information in your application, as any discrepancies could delay the approval process or hurt your chances of getting approved.

7. Government Loans


  • Borrowing costs: One of the main advantages of government loans is that they often offer lower interest rates than traditional loans.
  • Flexibility: Government loans often have more flexible repayment terms than traditional loans, which can make it easier to manage your monthly payments.
  • Accessibility: Government loans are often designed to help low-income families or individuals with poor credit scores.


  • Lending guidelines: Government loans may have more strict eligibility requirements than traditional loans.
  • Documentation requirements: Government loans may require more paperwork and documentation than traditional loans, which can be time-consuming and frustrating.

How to Get One

Getting a government loan for home renovations typically involves several steps. 

  1. Research lending options: The first step is to determine which type of government loan you are eligible for. There are several different types of government loans available, including FHA loans, VA loans, and USDA loans. Each loan program has its own eligibility requirements, so it is important to research each program carefully to determine which one is right for you.
  2. Explore lenders: Many banks and credit unions offer government loans, but not all of them participate in every loan program. You can search for lenders that participate in specific loan programs online or by contacting the loan program directly.
  3. Submit an application: The application process will typically involve providing documentation of your income, employment, and credit history. You may also need to provide documentation of the renovations you plan to make and the estimated cost of the project.
  4. Receive funding: Once your loan application has been approved, you will receive the funds you need to complete the renovations. Depending on the loan program, the funds may be disbursed in a lump sum or in installments as the renovations are completed. It is important to use the funds only for the approved renovations and to keep careful records of all expenses related to the project.

How to Know Which Financing Option is Best for You

Your Needs and Budget

When choosing a financing option for home improvements, it is important to consider your needs and budget. Determine how much money you need for the project and how much you can afford to pay back each month. This will help you narrow down your options and choose a loan that fits your financial situation. 


Eligibility is another important factor to consider when choosing a financing option. Lenders will look at your credit score, income and debt-to-income ratio to determine if you are eligible for a loan. If you have a good credit score and a stable income, you may be eligible for a lower interest rate. However, if you have a poor credit score or a high debt-to-income ratio, you may have to pay a higher interest rate or provide collateral to secure the loan.

Rates and Terms

Rates and terms are also important to consider when choosing a financing option. Personal loans and credit cards typically have higher interest rates than home equity loans, but they may offer more flexibility in terms of repayment. Home equity loans may have lower interest rates, but they require you to use your home as collateral. Be sure to compare rates and terms from different lenders to find the best option for your needs.


Collateral is another important factor to consider when choosing a financing option. Personal loans and credit cards are unsecured loans, which means you do not have to provide collateral to secure the loan. Home equity loans, on the other hand, require you to use your home as collateral. If you are unable to repay the loan, the lender can foreclose on your home. Consider the risks and benefits of using collateral to secure a loan before making a decision.

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