How to finance a home renovation

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No matter how much you love your home as it is, there may well come a time when it needs improvement, and some care and attention. But home renovations can be expensive, and with so many financial products out there, it can be difficult to work out which one to go for. To help you get to grips with financing a home renovation, these are the key things to bear in mind.

The financial case for renovating your home

First, it is important to think about why you are renovating your home. While a renovation can be carried out for many reasons, it is worth remembering that the cost of any renovations will be reflected in the price of the property when the time comes to sell it. So, although the cost of developing a home can be considerable, it can be viewed as an investment in an asset that will pay dividends in the long run. And if you are thinking of selling your home in the short term, it is always a good idea to think about where the property can be improved, whether that is with a new bathroom, an updated kitchen or a landscaped garden.

Don’t forget to personalize

Many people tackle the renovation of their home in order to improve its market value, and even if a renovation is carried out to make the place more comfortable, they often have one eye on how it will appeal to the average house buyer.

The problem with that approach is that it overlooks the importance of personality. Your home should be a reflection of you, your tastes and needs, and this can often make it more appealing to prospective buyers than a generic, blandly-decorated property. There are many ways to personalize your home, including buying a cozy sofa that you find inviting and pleasing, and making your bedroom more comfortable by visiting a mattress website and selecting a Molecule mattress. However you choose to go about it, try to ensure that any renovations you carry out have some personal touches.

How much should you borrow?

Even if you are doing the renovation work yourself instead of getting in a contractor, you will need to come up with an accurate estimate before you approach any lender, as they will insist on seeing a detailed figure for the cost of the renovation. If you are using a contractor, it is important to ask them for a firm quote, which should include the cost of materials and labor, with an additional percentage added on to cover unexpected costs. To be extra safe, you can add on another 20 or 30 percent to give yourself a cushion.

Will I get the money?

Many financial institutions go out of their way to give the impression in their promotional material that borrowing from them is easy, but the reality is often different. Your ability to borrow from a lender, and the amount that you can borrow will be determined by a range of factors, including your credit rating, your income and the loan-to-value-ratio. If you have no maxed-out credit cards and no missed payments, you will be in a strong position, while if you have a poorer credit rating, you may have to settle for a higher interest rate.

What finance options are available?

The best place to start is to consider mortgages from mainstream banks, brokers and credit unions. These will be based on using your home as collateral, but the good news is that these loans will be insured by the Federal Housing Administration (FHA). As many people already have a mortgage on their home when they consider renovation, this will effectively be a second mortgage, but that might work out cheaper than refinancing your existing mortgage, unless you can be sure that your home has appreciated significantly in value.

Other finance options include:

  • Home equity loans. Loans which offer a fixed interest rate and the whole amount up front – interest rates are often higher than with conventional mortgages.
  • Home equity credit. These are effectively mortgages but they work like credit cards. A lender gives you a credit ceiling up to which you can borrow. As with home equity loans, high interest rates can be a problem with these products, so it is important to find the best deal you can.
  • FHA 203(k) Mortgages. These loans are insured by the FHA and allow you to refinance your existing mortgage and add it to the renovation costs in a second mortgage. The loan is also based on your home value after the renovation.


Renovating your home can be a major project, but it is worth considering, whether you are planning to sell your house or simply want to make it more enjoyable to live in. Whatever your reasons for renovation, there are plenty of financial products out there to suit your circumstances, and it is vital to explore all of the options.