Home improvement financing options: How to pay for renovations and repairs

Planning a home improvement project? From contractor financing and personal loans to home equity loans, HELOCs and renovation loans, here’s how to compare your options and choose the financing solution that fits your project and budget.

Key takeaway

• The best home improvement financing option depends on the size of your project, how quickly you need access to funds, how much equity you have in your home and your overall financial situation.

Home improvement projects generally fall into three categories: necessary repairs, such as fixing a roof or replacing an air-conditioning unit; renovations, such as a kitchen remodel or room addition; and upgrades that improve comfort, convenience, accessibility or energy efficiency, such as smart home technology, replacement windows or aging-in-place modifications.

Whether you’re planning a major remodel, upgrading aging systems, improving your home’s energy efficiency or handling an unexpected repair, understanding your financing options can help you choose a solution that fits both your project goals and your broader financial plan.

High project costs can put a damper on those plans.

“Before comparing rates or monthly payments, homeowners should start by understanding the total project cost, their available cash flow and how the financing fits into their overall financial plan,” said Blake Pullin, Texas manager for Regions Mortgage.

“The best financing solution isn’t necessarily the one that provides the most borrowing power. It’s the option that helps you complete your project while supporting your long-term financial goals.”

Plan ahead

Saving and paying for a home improvement project with cash is often the least expensive way to fund a project because it avoids borrowing costs. Pullin recommends using the Regions cash flow calculator to identify opportunities to save before starting a project.

Setting aside money through automatic transfers can help you prepare for planned renovations and upgrades without taking on debt.

For emergency repairs, Pullin suggests exploring financing options, such as a home equity line of credit, before a need arises so funds may be available when unexpected expenses occur. Approval can take time, and it’s important to understand all fees, requirements and terms before opening an account.

“It’s designed for you to have peace of mind on days when emergencies come up,” Pullin said.

Common ways to finance home improvements

Depending on the project, homeowners may consider:

• A home equity loan
• A home equity line of credit (HELOC)
• An unsecured personal loan
• A renovation loan
• Financing offered directly by a contractor or service provider

1. Home equity loan or home equity line of credit

These options can offer significant benefits, including potentially larger loan amounts and more flexible terms than unsecured loans. Additionally, under certain circumstances, the interest paid may be tax deductible. Approval often requires income verification, employment verification and a home appraisal.

With a home equity loan, you receive funds in a lump sum and typically pay a fixed interest rate, which can provide predictable monthly payments.

With a home equity line of credit (HELOC), you’ll only pay interest on the funds you draw, but rates may change over time depending on market conditions.

In general, a home equity loan may work well when project costs are known upfront and predictable monthly payments are preferred. A HELOC may provide greater flexibility when projects are completed in phases or costs may change.

Because your home serves as collateral, failure to pay back a home equity loan could result in foreclosure. It’s important to understand both the benefits and risks before selecting either option.

Certain states, such as Texas, have restrictions on these types of loans, making it important to understand all available options before making a decision.

2. Personal loans

Unsecured personal loans may be approved within a few business days and generally don’t require home equity. However, rates and monthly payments are often higher than with home equity financing.

These loans may be worth considering for smaller projects, emergency repairs or situations where a homeowner has limited equity available.

3. Renovation loans

Renovation loans can provide funding for larger home improvement projects involving a licensed builder or contractor. Depending on the project, these loans may offer terms that differ from those available through home equity financing.

These loans can be used for projects ranging from kitchen remodels and room additions to extensive renovations or rebuilding efforts.

As part of the process, lenders typically review the builder’s qualifications, project plans and contracts and may monitor construction progress before releasing funds in stages. Unlike traditional home equity financing, funds are often distributed through a draw process tied to project milestones.

4. Regions home improvement and other contractor financing

Regions Home Improvement Financing works with a network of thousands of home improvement contractors to offer a variety of financing options, from same-as-cash to low monthly payment options. These loans are funded by Regions and offered through participating contractors with a simple paperless application process.

Homeowners can also refer their contractor to the Regions Home Improvement Financing loan program.

While contractor financing can be convenient, it’s important to compare rates, fees, repayment terms and promotional offers against other available financing solutions before making a decision.

How to compare home improvement financing options

Before selecting a financing solution, consider:

• How much you need to borrow
• Whether project costs are fixed or may change over time
• How quickly you need access to funds
• Whether you have available home equity
• Whether the monthly payment fits comfortably within your budget and financial goals

Answering these questions before meeting with a lender can help narrow your options and avoid borrowing more than necessary.

Take advantage of government rebates and tax incentives

In addition to potential tax advantages associated with certain financing options, Pullin recommends speaking with your accountant and investigating available rebates and incentives related to your project.

There may be state or federal programs available for certain energy-efficiency improvements and accessibility-related modifications.

Depending on current federal, state and local programs, certain energy-efficient home improvements may qualify for rebates, incentives or tax benefits. Eligibility requirements and available incentives can change over time, so homeowners should consult a qualified tax professional and review the latest program details before making decisions based on anticipated tax savings.

In certain situations, interest paid on a home equity loan or HELOC used to buy, build or substantially improve the home securing the loan may be tax deductible. Because tax laws and personal circumstances vary, consult a qualified tax advisor regarding your specific situation.

While making your home safer, more comfortable or more efficient is important, many borrowers still experience financial strain after all their bills are paid. That’s why Pullin recommends discussing your cash flow and debt management plan with a banker before moving forward.

A banker can help you establish realistic goals that support both your home improvement plans and your overall financial well-being.

Four things to do before starting a home improvement project

1. Get a financial review with your banker and a free Regions Greenprint® plan.
2. Develop a realistic project budget and estimate total costs.
3. Obtain multiple bids from experienced contractors.
4. Explore financing options before signing a construction contract.

Take the next step

Ready to explore financing options for your next home improvement project? Learn more about home improvement loans and lines of credit and connect with a Regions banker to determine which solution may be right for your needs.