{"id":23749,"date":"2021-05-27T15:57:58","date_gmt":"2021-05-27T22:57:58","guid":{"rendered":"https:\/\/www.homelight.com\/blog\/?p=23749"},"modified":"2026-04-09T09:20:25","modified_gmt":"2026-04-09T16:20:25","slug":"can-you-borrow-money-to-renovate-your-home","status":"publish","type":"post","link":"https:\/\/www.homelight.com\/blog\/can-you-borrow-money-to-renovate-your-home\/","title":{"rendered":"Demo Your Kitchen, Not Your Finances: Here\u2019s How to Navigate Home Renovation Loan Options"},"content":{"rendered":"

Disclaimer: <\/i><\/b>As a friendly reminder, information in this blog post is meant to be used as a helpful guide for educational purposes only; it is not legal or professional financial advice. For guidance on your individual situation, please consult a skilled financial planner.<\/i><\/p>\n

Maybe you\u2019ve been binge-watching HGTV and want to remodel your kitchen. Or maybe you\u2019re tempted to build an office add-on for your new remote job. Well, the average kitchen remodel can set you back between $10,000 to $100,000<\/a>. And that 12 x 12 office addition? Prepare to fork over $32,000 to $80,000<\/a>.<\/p>\n

Whether you need funds for an emergency fix or a major design overhaul, lack of cash doesn\u2019t have to stand in your way: You can borrow money to renovate your home.<\/p>\n

We spoke with two financial advisors to get their take on borrowing money for a remodel. Nikki Dunn, a Certified Financial Planner (CFP\u00ae) and founder of She Talks Finance<\/a>, reveals how your financial standing could impact your borrowing decision. R.J. Weiss, CFP\u00ae and founder of the personal finance site The Ways to Wealth<\/a>, offers advice based on his personal experience financing his remodel.<\/p>\n

\"An<\/a>
Source: (David Fanatan \/ Unsplash)<\/figcaption><\/figure>\n

Options for financing your home renovation project<\/h2>\n

There are many ways to borrow money to renovate your home. You can access your home equity through a federally-insured or private lender. Other financing options include unsecured personal loans, renovation loans, and credit cards.<\/p>\n

There\u2019s no one-size-fits-all solution: Each financing method comes with unique benefits and drawbacks. Below is an overview of the most common loan and credit options. For a more detailed overview, see our post on home renovation loans<\/a>.<\/p>\n\n\n\n\n\n\n\n\n\n\n\n
Loan type<\/b><\/td>\nLoan description<\/b><\/td>\nConsider this option for<\/b><\/td>\nLTV limits<\/b><\/td>\nOther factors to note<\/b><\/td>\n<\/tr>\n
Cash-out refinance<\/b><\/td>\nFixed or adjustable-rate mortgage loan, often a 15- or 30-year term, that pays off your existing mortgage with a higher loan amount\u00a0<\/span><\/p>\n

Lump-sum at closing to use at your discretion\u00a0\u00a0<\/span><\/td>\n

Larger, extensive remodeling projects when you need a large lump sum\u00a0<\/span><\/td>\n80%-90%, <\/span><\/a>depending on the lender<\/span><\/td>\nThese loans use your home as collateral, usually at a lower interest rate than unsecured loan options.\u00a0<\/span><\/p>\n

Funds used to remodel your home may be tax-deductible.<\/span><\/td>\n<\/tr>\n

Home equity loan<\/b><\/td>\nFixed-rate loan, commonly a second mortgage<\/span><\/p>\n

Lump sum at closing to use at your discretion<\/span><\/td>\n

Most remodeling projects when you need one large lump sum<\/span><\/td>\n85%-100%<\/span><\/a>, depending on the lender<\/span><\/td>\nThese loans use your home as collateral, usually at a lower interest rate than unsecured loan options.\u00a0<\/span><\/p>\n

Funds used to remodel your home may be tax-deductible.<\/span><\/td>\n<\/tr>\n

Home equity line of credit (HELOC)<\/b><\/td>\nRevolving line of credit that allows you to draw funds as you need it\u00a0<\/span><\/p>\n

Predetermined time period to draw funds before loan payoff term begins\u00a0<\/span><\/p>\n

Often has a variable interest rate<\/span><\/td>\n

Most remodeling projects when you don\u2019t need all of the funds upfront\u00a0<\/span><\/td>\n85%-100%, depending on the lender<\/span><\/td>\nAccording to Weiss,\u00a0 HELOCs have relatively low closing costs when compared to a traditional mortgage.\u00a0<\/span><\/p>\n

Pay interest fees only on funds you draw.<\/span><\/p>\n

These loans use your home as collateral, usually at a lower interest rate than unsecured loan options.\u00a0<\/span><\/p>\n

Funds used to remodel your home may be tax-deductible.<\/span><\/td>\n<\/tr>\n

Fannie Mae HomeStyle\u00ae renovation loan<\/b><\/a><\/td>\nConventional purchase or refinance loan used to finance improvements and repairs<\/span><\/p>\n

Funds placed in a custodial account and released in payments directly to your contractor<\/span><\/td>\n

Extensive remodels when you want to borrow money based on your home\u2019s post-renovation value for LTV purposes<\/span><\/td>\n95%, or 97%<\/span><\/a> with <\/span>homebuyer education<\/span><\/a><\/td>\nThese loans require extra paperwork and compliance requirements when compared to traditional mortgages. The lender releases funds as work progresses, subject to inspections.\u00a0<\/span><\/p>\n

These loans use your home as collateral, usually at a lower interest rate than unsecured loan options.<\/span><\/p>\n

Funds used to remodel your home <\/span>may be tax-deductible<\/span><\/a>.<\/span><\/td>\n<\/tr>\n

Limited FHA 203(k)<\/b><\/a><\/td>\nFederally-insured mortgage loan to renovate your home\u00a0<\/span><\/td>\nProjects under $35,000<\/span><\/p>\n

Borrowers who don\u2019t qualify for a traditional mortgage due to a low credit score or have limited equity in their home<\/span><\/td>\n

97.75%<\/span><\/a> of the post-renovation value when refinancing an existing loan\u00a0<\/span><\/p>\n

Location-based loan limits<\/span><\/a><\/td>\n

These loans have higher fees when compared to a conventional mortgage, with the added expense of mortgage insurance (MI).<\/span><\/p>\n

Government compliance and inspection requirements<\/span><\/a> apply.<\/span><\/p>\n

Minimum credit score of <\/span>500<\/span><\/a> required (some lenders may require higher).<\/span><\/td>\n<\/tr>\n

FHA 203(k)<\/b><\/a><\/td>\nFederally-insured mortgage loan for the purpose of renovating your home\u00a0<\/span><\/td>\nProjects over $35,000 and extensive remodels<\/span><\/p>\n

Borrowers who need work done on their home but have a low credit score or limited equity<\/span><\/td>\n

97.75%<\/span><\/a> of the post-renovation value when refinancing an existing loan<\/span><\/p>\n

Subject to <\/span>Location-based loan limits<\/span><\/a><\/td>\n

HUD consultant to oversee closing required.<\/span><\/p>\n

These loans have higher fees when compared to a conventional mortgage, with the added expense of mortgage insurance (MI).<\/span><\/p>\n

Government compliance and inspection requirements apply.<\/span><\/p>\n

Minimum credit score of <\/span>500<\/span><\/a> required (some lenders may require higher).<\/span><\/td>\n<\/tr>\n

Home improvement loan \/ Personal loan<\/b><\/td>\nUnsecured, fixed-rate loan with a <\/span>shorter term than a mortgage<\/span><\/a>\u00a0<\/span><\/td>\nMost renovation projects <\/span>under $100,000<\/span><\/a>\u00a0<\/span><\/p>\n

Borrowers with good credit who don\u2019t want to risk using their home as collateral<\/span><\/td>\n

Not applicable<\/span><\/td>\nHome improvement loans <\/span>may require proof of home improvements or repairs<\/span><\/a>, depending on the lender.<\/span><\/p>\n

These loans usually have a higher interest rate than a conventional loan, home equity loan, or HELOC.<\/span><\/p>\n

The loans require good credit \u2014 at least 610 to 640, depending on the lender. Borrowers with a FICO score of 740 or higher see the best rates<\/span><\/a>.<\/span><\/td>\n<\/tr>\n

Credit cards<\/b><\/td>\nUnsecured, revolving line of credit that can be used at your discretion<\/span><\/td>\nSmall projects and emergency renovations\u00a0<\/span><\/td>\nNot applicable<\/span><\/td>\nCredit cards usually have the highest interest rates.\u00a0<\/span><\/p>\n

Credit cards could be beneficial if you have a low introductory rate and you pay off the entire balance within the introductory period.<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Before you borrow money, look at the big picture<\/h2>\n

Just because you can borrow money to renovate your home doesn\u2019t mean you should. For one, borrowed renovation funds will add to your existing debt obligations. Secondly, after tacking on interest fees, your project could end up costing significantly more than you think.<\/p>\n

To keep your finances healthy, map out a remodeling plan and evaluate your financial situation before you commit to more debt.<\/p>\n

Consider the scope and budget of your renovation project<\/h3>\n

Your first step to evaluating if you should borrow money to renovate is to estimate a project budget. Tally up the contractor bids and any additional costs to complete your remodel. Then pad your budget. Houzz suggests setting aside 20% of your renovation budget for unwelcome surprises<\/a>, such as water-damaged subfloors the contractor discovers after peeling off the old linoleum or a jump in lumber prices.<\/p>\n

\u201cExpect the project to get more expensive over time … if you’re borrowing money, you may want to add a little buffer between your budget and the amount you borrow,\u201d notes Weiss.<\/p>\n

If your remodeling budget has more commas than you expected, consider breaking the project into smaller phases that you can tackle over time<\/a>. Smaller projects could relieve some of the initial financial stress by spreading out contractor invoices. You may be able to save money and pay for the renovation with cash over time, rather than borrow \u2014 this route could save you hundreds to thousands of dollars in interest.<\/p>\n

Estimate your project\u2019s return on investment (ROI)<\/h3>\n

If you choose to borrow for a remodel, you increase your debt. But if the renovation adds value to your home, borrowing could be worth it. Depending on the project, your renovation could yield a strong return on investment when you go to sell your home.<\/p>\n

For instance, a 2019 survey by the National Association of Realtors (NAR) estimates that a complete kitchen remodel garners a 59% return on investment<\/a>. New hardwood flooring has an even stronger ROI, with homeowners netting back 106% of the project cost.<\/p>\n

On the flip side, some home renovations do not add value to your home. You could also over-improve your home<\/a> and recoup less of your investment than you anticipate. To estimate renovation ROIs, speak with a top real estate agent in your area<\/a>. They can advise on what features add value and marketability in your neighborhood.<\/p>\n

\u201cLook at the economics of the renovation,\u201d advises Dunn.<\/p>\n

\u201cYou can see people take out debt and \u2018over-renovate\u2019 and spend more money on it than the value it will add to your home.\u201d<\/p><\/blockquote>\n

Think about your future plans<\/h3>\n

If you\u2019re planning to move within a few years<\/a>, freshening up a dated home or replacing an old, leaky roof makes sense to maximize your resale value<\/a>. An expensive, large-scale renovation like a home addition, on the other hand, may not be worth the financial stress.<\/p>\n

If you\u2019re leaning toward a home equity loan or home equity line of credit (HELOC), keep in mind that you\u2019ll have to pay off the debt when you sell if you haven\u2019t already. Both loan types put a lien on your property<\/a>, and you won\u2019t be able to give the buyer a clear title to your home unless it\u2019s paid off. Your closing agent can help guide you through the process when it\u2019s time to sell.<\/p>\n

Evaluate your financial health<\/h3>\n

Always review your finances before committing to debt. Falling behind on your bills can make you resent even the most stunning kitchen remodel. Think about these financial factors before you borrow:<\/p>\n