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4 Keys to Financing Home Improvements

4 Keys to Financing Home Improvements

When it comes to home improvements, one of the first things to consider is how you are going to pay for them. While it might be desirable to pay for them outright, often the cost of repairs and even the urgent need for improvements makes that difficult.

Ideally, you have a savings account or other way to pay for your home improvements. However, there are many other options if you don’t. You can do everything from using credit cards to borrowing from friends and family, however, these may not be the best options for you.

If you are going to finance your project, you need to search for the best home improvement loans. These can range from home equity loans to home equity lines of credit or even unsecured personal home improvement loans available even if you have no equity.

Once you have chosen how to finance your home improvements, there are some factors you should look at before signing the bottom line.

Think of Return on Investment

The question is not whether there will be a return on your investment or not, but when you would like to see that return. If you are going to live in your home for a while, the monetary return on your investment may not be as important as the comfort home improvements will provide for you and how much you will continue to enjoy your home.

However, if you plan to sell your home soon, and your home improvements are an attempt to make it more marketable and ready to sell, you will want to carefully evaluate some things before you get started:

  • Will these improvements add to the value of my home that is greater than their cost?
  • Wil these home improvements add a cost to my home that will price it out of the market in my neighborhood or area?
  • Are there aspects of the project that I can do without that don’t add real value to my home?
  • Are these improvements essential for me to complete before I can sell my home?

The timeframe for the return on your investment will depend on the equity you have now, the value and equity improvements will add to your home, and how soon you plan to sell and recover those investments.

Set a Budget

Once you have determined exactly what you will do, why, and how soon you need to recoup your investment, you can set a budget. The key to this step is to determine exactly what projects you will and will not do at this time, and stick to only that list. From there, you need to do a few other things as well.

  • Get good estimates. Get several estimates on both materials and labor, and make sure they fall within the amount of money you can afford.
  • Determine the DIY factor. While you probably can’t do everything yourself, you can probably do some small parts of the project and save yourself money. just make sure that the things you do don’t affect any warranty the contractor offers.
  • Pan for the Unexpected. In any home improvement project, usually something will go wrong at some point. Create a cushion in your budget for around 20% that will cover these expenses.

Once you have set a budget, you can begin the task of determining where that money will come from. one of the most important things is to stick to this amount. Remind yourself if you are tempted to add projects mid-stream that the money that is used on that project must be taken away from another one.

Take Interest

Another aspect of this is looking at the interest rates you are paying. This is why it is important to know when you want to get the return on your investment. If you plan to get it sooner rather than later, it may not matter if the interest rate you are paying is a little higher, since you plan to pay off the loan as soon as your house sells.

However, if you are looking at a longer-term investment because you plan to stay in your home, you want to get the best interest rate you can, the lower the better. This may be where you want to use some mixed financing: use a zero-interest or low interest credit card for a part of the project, and plan to pay it off quickly, and use a low interest loan to cover the rest.

Either way, just keep in mind the interest you are going to pay, and what your loan will actually cost you in the long run.

Look at Terms and Conditions

What are the terms and conditions of your financing? Is there an early payoff penalty? How long is the financing for? Can you make extra payments toward the principal? Is the interest rate fixed or variable?

These are all key questions to making sure the financing you have chosen is right for you. While it may seem tedious to read through all of that mumbo-jumbo, knowing exactly what you are signing is vitally important. 


Financing home improvements is fairly simple and straightforward, but taking the time to consider a few key factors will keep you from making critical errors that could cost you in the long run. if you have any questions, feel free to leave us a comment in the section below.