Home Renovation


Financing the Renovation

You know what you want, but how do you pay for it? Financing typically comes from four major sources. Read this section to learn more about financing options.

Four Forms of Financing

  • Equity line of credit
  • Refinancing your home
  • Remodeling or other loan
  • Cash or credit cards.

Equity Line of Credit

Lenders will give you a line of credit based upon the equity in your home. The equity in your home is its appraised value less what you owe on it. For example, a home appraised at $200,000 with a $120,000 mortgage means you have $80,000 in equity. The bank will loan you the amount of money you need and you pay them back with interest. But if you can't pay them back, they will take your equity.

The advantages are that you spend and pay interest on only what you need, out of that available credit line, and, your interest is tax deductible. In addition, equity lines are typically approved quickly, have no closing or other costs, and can be converted to other loans easily.

Refinancing Your Home

If mortgage rates continue to be low, refinancing is a viable option. This lets you replace your existing mortgage with a new, larger mortgage, allowing you to take the “cash out” from the larger amount and use it for your renovation.

Again, interest payments are tax deductible. However, you may incur closing and other costs, and you do now have a much higher mortgage to pay.

Remodeling or Other Loans

Remodeling-specific or other loans are also available from many lenders. Terms and conditions will vary--discuss with each lender those options.

Cash or Credit Cards

Some homeowners have a nest egg or other assets they can liquidate for remodeling, at least in part. Others may use credit cards for certain expenses.

Be forewarned – credit cards are not a smart way to finance a renovation. You have no contingencies, high interest rates, and no tax advantages whatsoever.

Getting More Information on Financing

Numerous sources are available through the Internet, your local bank, realtors, and remodeling firms to assist you with financing specifics. No matter how you choose to finance your renovation, remember:

  • Clean up your credit history (See the Trusty Guide to Credit)
  • Is this project a reasonable investment for your property and location?
  • Investing 20-30% of a home’s value for renovation is reasonable
  • Budget realistically, and include money for contingencies.


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