When it comes to home improvement financing, you have many different options to choose from.  Most people are aware of home equity line of credits, home equity loans, or cash out refinancing, but there are a few more options that are also worth considering—especially if you are purchasing a new home and are looking for a way to pay for improvements that need to be done right now.  Given our current market conditions, there are literally millions of people who are looking for this type of home improvement financing during the initial purchase of their home/investment property.

In this post, I’ll go over the basics with your options for home improvement financing, and hope you find it beneficial in your search for the best product. 

First, before you go talk to a home improvement loan specialist, you need to ask yourself a few basic questions:

1.       How much money do I need?

2.       How long will I need it for?

3.       Will there be additional projects/needs down the road?

It’s very important that you make an assessment of your needs first, because the type of home financing you apply for will depend on those answers. 

If you answered a small number to number 1 (and by small I mean a couple hundred dollars – think paint the garage and put in a garage door opener), then you probably want to look at using a credit card for financing. This is a loan that you should be able to off in a few months, so most banks won’t really consider going through the loan process since the expense of the process will almost certainly be more than any interest they could charge you. However, remember that credit card fees are extremely high (as much as 25%), so only use this option if you can pay off the balance quickly. If you cannot, then you are best saving for a month or two so you don’t have to borrow anything at all.

However, if the home improvement loan is for something more substantial (like $5,000 or more), then there are several great home improvement financing options that you can choose from. I will break this into two sections, one for those who are looking to purchase a home, and one for those who already own a home.

If you are in the market to buy a home, but are finding many homes that also need some repairs/improvements, there are some options in which you can get a mortgage that includes a home improvement loan as part of the principle amount, allowing you to use the mortgage money to renovate the home. You can find more information on these types of home loans here: URL

However, if you already own your home, then you have the following home improvement loan options:

Home Equity Line of Credit (HELOC)

A home equity line of credit is very popular for use in making improvements on your home. There is a lot of flexibility with a HELOC, and the rates can be very low and variable. Most of the time, you will want to explore your options with a home equity loan if you are looking to make a series of home improvements instead of just one big renovation. With the flexibility offered by a HELOC you can draw down on your line of credit as you needs arise, and then pay back just what you have currently borrowed. This can keep your loan costs lower, especially if you have costs that are spread out over time, since you end up borrowing the money for less time. Another advantage of a HELOC is that the interest can be deductible, with limits, on your federal income taxes.

Home Equity Loan

A home equity loan allows you to tap into the existing equity you have built up in your home, much like a home equity line of credit allows, and the interest is also tax deductible. However, with a home equity loan you will take out a set dollar amount and have a fixed payment amount as well. This type of home improvement financing is best used for those who know approximately what the costs of the project will be and know that they won’t need any more money down the road. It is also best for people who like to know exactly what their payments are going to be and budget accordingly.

Borrowing against certain assets

HELOCs and Home equity loans are the two most common forms of home improvement financing, but there are additional home improvement loans you should consider, including borrowing from your 401K, taking a loan against your life insurance, or borrowing from your stock portfolio on margin. These types of loans can be beneficial depending on your circumstance, but they all come with a catch and should only be used if you understand completely what you are getting yourself into. Essentially, they all rely on you using an asset that you have—and in most of these cases that means money you have saved for retirement. Be careful to not borrow to much against these assets, or you run the risk of losing money you had planned on having for when you stop working. Not to say that using margin on your stock account is not a good way to get a quick, easy home improvement loan (or, better stated, a way to use the money received for a home improvement project, since they won’t ask you what you are taking the cash for). But, I am saying make sure you realize that this could jeopardize your savings. For example, if you have a portfolio worth $50,000, and you borrow $25,000 to put in a swimming pool and a swimming pool slide, and then the stock market crashes like it did last year, you may loose your entire portfolio and be forced to sell your stocks at the bottoms of the market. How? Well, if the market drops 50%, then you have zero equity in your portfolio, and your brokerage will force liquidate your account. In this case, you probably should have just tried to get a pool loan.

Title 1 Loans

Title one loans can be great if you need to make improvements to your homes, but do not have sufficient equity to qualify for a traditional home improvement loan. A Title 1 loan is a loan made from a bank or other lender which is guaranteed by the FHA (Federal Housing Administration). These loans cannot be made for non-essential items, like lap pools, or other luxury items.