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Kevin Ahern

By: Kevin Ahern on February 28th, 2019

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Your Guide to Financing a Home Remodel


Home remodels tend to be big undertakings, and paying for them can be intimidating.

For homeowners financing a home remodel, there are many possibilities. It's important to take an educated approach. If you're a homeowner who is thinking about remodeling your home, you can avoid problems by doing careful research, speaking with multiple lenders and understanding the cost breakdown can help you find the right financing.

Working with an expert or a team of experts is another way to get the right financing. You'll need to have a good contractor and to work with a good lender. The information below can help you get started.

Your Options for Financing a Home Remodel

Financing comes in different options. What works for one homeowner may not work for another. Each homeowner has different needs based on their credit, savings, equity and other limitations.

Refinance Your Mortgage

Homeowners who have a lot of equity built up in their home will sometimes consider mortgage refinancing options. The mortgage refinancing option allows homeowners to tap into their home's equity.

The homeowner starts by borrowing enough money to pay off their current mortgage and then some. The extra money can be turned into cash, which can be used to pay a contractor or buy materials. Homeowners with good credit may be able to borrow as much as 80% of their home's value.

This type of loan does have its downsides, because it tacks interest and fees to a home improvement project. This means a homeowner can take 15 or 30 years to pay off their remodel, depending on the type of loan they secure. This is usually only an appropriate option if the remodel will increase the home's value, thus increasing the equity in the home.

Home Equity Line of Credit

A home equity line of credit is also known as a HELOC. A HELOC does not pay off the mortgage. Homeowners are given a line of credit that matches the equity in their home, up to 80% of the value of their home.

A HELOC is similar to a credit card in that you can use your HELOC to buy goods and services, but you only borrow what you need. When the remodel is complete, you pay down the balance the way you would a credit card.

Home Equity Loan

Home equity loans are just another way to borrow money without refinancing your home. With a home equity loan, homeowners receive a lump sum of money with fixed payments, to be repaid in a given period of time. Home equity loans are a type of second mortgage. These loans are often preferable for homeowners who have a mortgage with a low interest rate.

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Personal Loan

A personal loan is a type of loan that does not require you to put your home up as collateral. Compared to home equity financing like the HELOC and second mortgage, personal loans typically have a higher interest rate. Borrowers are required to pay back the loan in a shorter period of time (between 5 and 7 years), so the borrower must make larger payments as well.

Because the home is not put up as collateral, personal loans require the borrower to have excellent credit. This is an option considered by people who have little equity in their home, but who need to make urgent home improvements.

Low Interest Credit Card

A low-interest credit card is an easy option for homeowners who have small home improvements to make. Many contractors now accept credit cards to pay for home improvements, but not all have the technology. Homeowners who plan to pay for their home improvement with a low interest credit card should check with each contractor they consider to ensure that they can accept this form of payment.

Also worth noting is that some credit cards have a low interest rate for a short period of time. Homeowners who plan to put their home improvement on a low interest credit card should check to ensure that they understand the terms of their card.

Save Up and Pay Cash

Paying for a home improvement with cash is the least expensive way to remodel a home. It saves time, effort and money. However, this method of payment is not for everyone. A homeowner who needs a new roof, for example, may not be able to wait until they've got the money. Some home improvements need to be made urgently.

What To Consider When Setting Your Budget

Setting a budget early is critical. Establishing a budget and communicating that budget with the contractor is the best way to ensure that there will be enough money to complete the home improvement project. Usually this is done before or at the same time that the financing is secured. The budget for the home remodel should include some key components, including:


Materials make up a large portion of most home remodeling budgets. Shopping around can save money. Some contractors can get deals from material suppliers, so homeowners on a budget can talk to their contractor about obtaining low cost materials to complete their project.

Green materials are another excellent way for homeowners to save money. While many green products and appliances cost more up front, they save homeowners money by using less energy and running more efficiently. Homeowners hoping to save money must take this into consideration when budgeting for their project.

Labor Costs

Labor costs make up another large portion of most home improvement projects. A good contractor will provide information about how much labor costs per hour, but the total cost will vary depending on the number of hours spent on the project. Unexpected changes to the project may cause labor costs to go up.

Unexpected Costs and Contingencies

Unexpected costs come up in almost every home improvement project. Sometimes this happens when the contractor discovers dry rot or damage that must be repaired, other times this happens because the homeowner decides to change their project at the last minute.

Either way, it's important for homeowners to include this in their budget. Unexpected costs and contingencies can make up 10% of the total project costs, and sometimes this amount is higher.

Contact Litchfield Builders to Get Started

Are you planning a home improvement project? How much do you plan to spend? What steps are you taking to create your home improvement budget? Leave your comments in the box below.

Homeowners who want to make improvements to their home must first secure financing. Usually this starts by creating a budget, getting bids and contacting lenders. At Litchfield Builders, we help with this process by providing accurate and detailed bids to help homeowners create their budget and secure financing. With over 20 years of experience with home improvement, we know how to communicate with homeowners and help them through the home remodel process.

To get started on your upcoming remodel, contact us today. We'll provide you with a free consultation to discuss your remodel and potential costs. To find out more about making a home improvement project, download our free publication, Sustainability & Green Building in Commercial Construction.

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About Kevin Ahern

Kevin is the Co-Founder of Litchfield Builders, an award-winning, industry leader with a reputation for managing projects others shy away from. They are known for their high-quality work, customer service, and reliability and though still relatively small in size, Litchfield Builders now competes with some of the areas largest firms in both the residential and commercial arenas.