4 Financing Ideas for Your Home Renovation Project



So you finally found a fixer-upper that you would like to live in, but it is in terrible shape. Between your savings and credit card, you are considering not buying it and renovating. However, opportunities like these are rare, and you may leave wondering if you could just opt for a renovation. Renovation does not have to entail the whole house, you may want to add extra living space, open up the windows, or just change the décor.


If you cannot afford to save up, then below are five financing ideas you should try for your home renovation project.

The FHA 203k Loan

The Federal Housing Administration (FHA) recognizes the need to renovate houses in an effort to promote house ownership – FHA 203k loan. Before you even think of applying for this type of loan, you need the right answers to questions such as how does a 203k loan work? Do you qualify for one? Do you require a streamlined or standard loan? This research is critical as it enables you to make informed decisions and better negotiate the terms of the loan.
A 203k loan works best for major renovation projects such as upgrading the plumbing, wiring and heating or modernizing the design of an old home. While at it, ensure you correctly value the home and neighborhood for the future. While you may require a lot of paperwork to qualify for this financing option, the average 3.5% down payment is attractive and easy to handle.

Utilize Your 401 (k)

A 401 (k) is an employer-sponsored retirement plan that lets you save up to $18000 from your salary, before tax. For those already in such a program, the benefits are alluring. Renovating your home using your retirement plan is essentially a way to borrow from your future, to increase the value of your future. It’s a win-win situation, especially if property prices in your neighbourhood skyrocket.
Nonetheless, such a move will attract a 10% penalty for early withdrawal and various taxes, according to an online guide on early 401 (k) withdrawals. If you are nearing your retirement age, tapping into your 401(k) is even better as you are about to enter into a low tax age bracket.

Leverage your Home equity

Home equity refers to your home’s market value minus all outstanding loan balances. Therefore, a home equity loan is typically like a second mortgage on your home. If other financing options are not workable for you, you can get a home equity loan. The advantages of using such a loan to finance your renovation project include no application, annual or closing cost fees.
The other option that utilizes your home equity is the home equity line of credit (HELOC). It is typically a type of loan that allows you to access a certain amount of money based on your home equity. In both cases, the interest rate is lower than that of a personal loan, especially with the home equity loan. The repayment schedules are also quite flexible.

Refinance Your Mortgage

This option is ideal for minor renovation projects on your mortgaged home. An online real estate resource notes that real estate property prices vary depending on interest, inflation, and technological advancement. This, in turn, results in a lowering of interest on loans by investors and financiers in an effort to increase their returns. As such, you may find a lender that offers an inexpensive deal now that did not exist three years ago when you took out your mortgage.

Refinancing your mortgage lets you review and rewrite the terms of your previous loan with your new lender, reducing your monthly repayments and saving you thousands for your home renovation. Nevertheless, you have to pay a substantial amount of exit fees, home valuation and mortgage registration fee. Compared to the amount you save by refinancing, it is a viable option.

The Bottom Line

If life was easy, then everyone would pay for their home renovation projects upfront and in cash. However, that luxury is limited to a few individuals. That does not mean you should give up on your dream home. The financing options above are excellent choices. Do your due diligence and research on all the possibilities, while factoring in your neighborhood and state laws before you begin your home renovation.