How To Pay For Home Improvements in 2025

The best way to pay for home renovations depends on the strength or weakness of your financial situation, as well as your short and long-term financial goals. You also need to stay flexible with your plans and budget.

As Bankrate editor Katie Lowery discovered, your fix-up plans may change. What originally began as a pool resurfacing project soon turned into a complete redo of her backyard. “Ultimately, we decided to tackle additional backyard projects at the same time, so the scope (and its cost) grew substantially,” she says.

For an average home renovation, you’re probably crunching numbers on a $50,000 budget. You can use your savings or a wide range of home improvement financing options, from home equity loans to specialized government programs. Understanding how to adjust your budget, as well as the different types of loans you can use, can help keep you on schedule and financially on target.

Terms to know

• Draw schedule
  

  The timeline of payments that need to be made during your renovation project, which usually involves 3 to 5 draws.

  Contractors expect a draw after work is completed either from you or your lender (if you’re using a renovation loan).

• APR
  

  This stands for annual percentage rate and reflects the total cost of credit (including fees) over the life of your loan.

  Watch your APR on renovation loans – it may be higher than usual since you’ll incur draw fees with each phase of project completion.

• LTV
  

  Short for loan-to-value, this number is the percentage of your home’s value currently tied up by financing.

  For home equity loans, home equity line of credit or renovation mortgage, your LTV needs to be significantly lower than 80 percent to get financing.

  Exception: Renovation mortgages will base your new loan on the estimated value up to a higher LTV.

• CLTV
  

  This acronym means combined loan-to-value.

  The lender assessed this number when determining how much of your home’s value will be borrowed after you take out a second mortgage, like a HELOC or home equity loan.

• Reserve contingency
  

  This typically only applies to renovation loans and is typically 10 percent of the loan amount. The money is a cushion if you run over budget but is refunded to you if not used.

• Draw period
  

  This usually applies to home equity lines of credit and refers to the number of years your loan is “revolving.”

  Most HELOCs include a 10-year draw period, allowing you to use, pay off and reuse your line of credit, similar to a credit card. Once the draw period ends, the loan switches to installment payments for the rest of the repayment term.

• Mechanic’s lien
  

  Depending on the scope and type of work done on your home, contractors may attach a lien, or legal claim, to your home to ensure payment once the work is done. The lien is released once the contractor confirms payment in full for all labor and materials.

7 best ways to finance home improvements

Home improvement projects can easily cost you tens of thousands of dollars and often require financing. For many homeowners, using savings will be the least expensive option.

If you don’t have enough cash to cover a major project, need to make emergency repairs or pay for an ongoing renovation, options like a personal loan or line of credit may be more appropriate.

1. Savings

The cheapest way to pay for your home renovation is to save and pay with cash, but saving money takes time. When you pay cash instead of financing, you might have to put off needed upgrades or maintenance projects for years. That could ultimately cost you more if deferred maintenance leads to a large, unexpected repair.

The amount you need to save depends on the type of renovation and the project’s scope. If you can spread the projects out over several months or years, use cash to pay for small and less expensive projects over time. This can prevent you from depleting your savings too quickly.

Benefits

• No additional debt
• No accruing interest or closing costs
• Avoid credit-damage from credit checks and missed payments
• Less chance of overspending

Drawbacks

• Takes more time to build savings versus financing
• May not work for emergency repairs or renovations
• Reduces cash available for other needs
• No lender or title company protections against contractors

2. Home improvement loans

Home improvement loans are unsecured personal loans offered by banks, credit unions and a number of online lenders. Because the loans are unsecured, you don’t need to use your house as collateral to qualify, but you could easily end up with a double-digit APR. These types of loans are a good choice if you need all your funds at once and want to avoid the hassle of the more involved loan approval process.

They are typically easier to apply for, and approval is based on your income and credit scores. Funds are often available within one business day of application. Some personal loan lenders set the maximum home improvement loan amount at $100,000 – but most lenders have much lower caps.

Benefits

• Fast approval with funding within a few days
• APRs and fees may be lower than mortgage options
• No risk of foreclosure since your home isn’t secured by the loan
• Good for average-cost projects

Drawbacks

• Potentially high interest rates for lower credit scores
• Short loan terms mean higher monthly payments than home loans
• Costs may be significantly higher depending on lender
• Must borrow all funds at once

Best home improvement loans

Want to check out the running rate for home improvement loans? See what rates you qualify for with Bankrate’s list of best lenders.

Check rates now

3. Home equity line of credit (HELOC)

A HELOC is a loan secured by equity in your home. It acts as a revolving line of credit, so you can borrow what you need when you need it – up to your credit limit. That makes it a good option for ongoing projects since you can use as much or little of your available credit as needed during the draw period, which typically lasts 10 years.

HELOCs use your home as collateral, so you risk foreclosure if you are unable to repay. Most HELOC interest rates are variable, which means your payments can increase depending on market conditions.

Rates are typically lower since they’re attached to your home, with repayment terms as long as 30 years. Payments are only based on the amount you’ve used, so if you’re using a little at a time, rate changes won’t affect you as much.

Benefits

• Can use as much or as little available credit as needed during the draw period.
• Interest may be tax deductible
• Repayment period may be as long as 30 years
• Higher borrowing amounts for bigger projects

Drawbacks

• Variable interest rates may increase
• Converts to an installment loan after the draw period ends
• Amount of credit limited by how much equity you have
• Risk of foreclosure if you default

Current HELOC rates

Interested in getting a HELOC? Check out the latest rates lenders are offering.

Check rates now

4. Home equity loan

The 2024 Bankrate survey “Younger homeowners are more willing to tap home equity for nonessential, big-ticket purchases” found that 55 percent of current homeowners consider home improvements or repairs a good reason to tap into home equity. If you want to access your existing equity but don’t need revolving credit, a home equity loan may be worth a look.

Home equity loans typically allow you to borrow more than a personal home improvement loan, with terms as long as 30 years. A home equity loan can be a good option for the following situations:

• You know exactly how much you need.
• You want all of your funds in a lump sum for your renovation project.
• You prefer the predictability of a set monthly payment.

Like a HELOC, a home equity loan uses your home as collateral, so stay current with payments to avoid default and foreclosure. On the positive side, you also get the same potential tax write-off if all the funds are used for home improvement.

Benefits

• Fixed interest rates with predictable monthly payments
• Interest may be tax deductible
• Over-spending is more difficult than with a credit line

Drawbacks

• Higher credit score needed to qualify for the best rates
• Risk of foreclosure if you default
• Potential for underwater mortgage if property value declines

Current home equity loan rates

If you’re interested in getting a home equity loan but not sure about current market rates, then look no further. Bankrate has made it easy for you to check lenders and their rates.

Check rates now

5. Cash-out refinance

A cash-out refinance replaces your current mortgage with a new, larger loan. The extra loan funds can be used to fund home improvements. This is a good option for the following situations:

• You need to spread your payments out.
• You don’t qualify for a home equity loan or HELOC because of your credit score.

You get the same potential tax benefits as other home equity loan products, and you can spread your payments over 30 years. Keep in mind you’ll need significantly more equity to qualify since most lenders cap your LTV at 80 percent.

Benefits

• Only one monthly payment to deal with
• Lower credit score qualifying requirements than second mortgage loans
• Potential to secure a lower interest rate

Drawbacks

• Mortgage debt increases
• Must have substantial home equity to qualify
• Current cash-out refinance mortgage rates are at record highs

6. Credit cards

If you’re making minor updates to your home, using your credit card for home improvements might be one of the best financing options, especially if you want to rack up on rewards or a bonus on a new credit card. According to Bankrate senior writer Katie Kelton, credit cards have notoriously high interest rates, so it’s best to pay off your balance before you start spending.

If you qualify for a 0 percent introductory APR card, you could avoid interest if you pay back the balance by the end of the introductory period. This is in addition to the rewards options offered by many credit card companies.

Benefits

• Potential to earn cashback perks and other credit card rewards
• Borrow money as you need it
• 0% APR cards can save you thousands in interest

Drawbacks

• High interest rates
• Could tank your credit score if you carry balances
• May be difficult to track payments with multiple cards

7. Government and private renovation loans

You may be able to finance your home improvement projects with conventional or government-backed renovation loan programs. Programs like the FHA 203(k) loan allow you to finance small or mid-sized projects even if you have fair to bad credit, but you can’t make luxury upgrades like adding a pool or firepit.

Benefits

• Typically allow you to borrow based on the after-improved value of your home
• Government renovation loans may be easier to qualify for
• People with less-than-stellar credit or a thin credit history may qualify

Drawbacks

• Government-backed renovation loan funds must be used to increase the property’s livability
• More stringent eligibility requirements
• More approval hoops to jump through for funding

Conventional mortgage renovation programs, such as the Fannie Mae Homestyle loan, allow you to borrow money for almost any type of renovation based on the improved value of your home. Keep in mind you’ll need to meet the credit standards for a conventional loan to qualify.

A HUD Title I Property Improvement Loan lets you borrow up to $25,000 without any home equity. They can be a good option if you’ve recently purchased your home and need to make upgrades, provided your loan goes to approved renovations, not luxury upgrades.

What to consider when choosing the best financing option

The best financing for home renovations comes down to your time for completing the improvements, the total costs, your financial goals and whether these are forever home or value-increasing upgrades.

• Time
  

  If you have some time before you need to get the project done, create a plan to save for all — or some — of the cost. Saving ahead of time will help you cut down on the interest you pay. Personal loans can be a great stopgap if you want quick funds to do something that can’t wait but want to pay it off over a year or two.

• Cost and scope of the project
  

  Estimating cost and scope can help you determine what kind of financing you need. A major renovation will typically cost at least five figures and can easily cross the six-figure threshold if you’re adding square footage or an guest house structure. In that case, a home equity loan or HELOC may be your best bet.

• Financial situation
  

  Your credit score, debt-to-income (DTI) ratio and available home equity can impact your loan amount and interest rate. Before you apply, know your credit score and review your budget to make sure you can afford an additional monthly payment.

  Government backed renovation loans or FHA cash-out refinancing may be your best bet if you’ve got some credit bumps in your history and are making deferred maintenance improvements such as upgraded air conditioning, a new roof or handicap access for an aging family member.

• Financial goals
  

  Any home improvement financing will mean taking on additional debt. If you want to avoid an additional monthly payment, build your savings or consider a cash-out refinance. If you’re not happy with how much savings you’ll use or don’t want to finance the entire project, consider splitting up your renovation between both cash and financing.

• Current interest rates
  

  If you purchased a home or refinanced when rates were low, a cash-out refinance may not be the best option since you’ll get a higher interest rate. However, if your new interest rate will be lower than your current one, a cash-out refinance may be a great option for receiving funds and saving money.

• DIY vs. contractor
  

  If you’ve got some fixer-upper skills or know someone who does, you might be able to save a bunch of money by doing the work yourself. Get plenty of referrals for contractors – most people are happy to refer someone who has done solid work at a fair price.

Average cost of home renovations

The average cost of a home renovation is $52,240, though it can range from $19,488 to $88,364, according to Angi. While that figure is the national average, your home improvement project costs may vary greatly based on the size and location of your home, the type of project you’re undertaking and the estimated completion time. Even smaller, low-cost improvements can still be pricey, thanks to inflation.

With inflation remaining at one of its highest points in decades, everything — including home improvements — is more expensive. However, about 3 in 4 homeowners were planning some type of home improvement project in Q1 of 2025, according to the Home Improvement Research Institute’s Quarterly Homeowners Project Activities Tracker.

Here’s a quick overview of the average cost of some common home renovations.

I used to help customers with renovation loans in my mortgage originating days, and most lenders required a 10 percent contingency reserve for potential over-budget costs along the way. Even if you’re paying in cash, adding that 10 percent to your planning budget could protect you from unexpected labor or material cost spikes that can occur during a renovation project.

A tip for planning home renovations

A little extra planning helped Katie Lowery make improvements, which she still enjoys to this day. She and her husband started with a sinking fund, setting aside money every month after being told their pool would need to be resurfaced in a few years. “Our goal was to save about $250 per month, although some months we were able to save more,” Lowery says.

When the time came to get the project done, Lowery had saved over $10,000 that was parked in a high-yield savings account. “In the end, the backyard paradise we created was well worth it, and avoiding debt made it all the sweeter,” she says.