Best Ways to Pay for Your Home Remodel Project

Building contractor and young couple communicating while using computer at construction site.
skynesher / Getty Images

Many things about home renovation are flexible. You can always change wall colors or nudge a wall a few inches. But one thing is certain: you need money.

Money is the lifeblood of your home remodel. It's there at the beginning in the form of a deposit, and it shows up again at the end, as a final payment. And all throughout the process, you'll have more payments to make, plus a few you didn't expect.

From liquid assets to home equity and sweat equity—along with a few little-known sources of home improvement money—learn the best ways to finance your home remodel.

Cash and Liquid Assets

  • No interest, no fees, no charges

  • You are not dependent on anyone else

  • Funding speed is instantaneous; no need to wait on anyone to liquidate these funds

  • Depletes reserves for emergencies

  • Most people do not have a lot of cash available for larger projects, such as additions and full-room remodeling

The most readily available money you can have: savings, checking, CDs, and savings bonds near maturity. Cash is absolutely the cleanest, freest way to pay for your project, as you are not beholden to a lender. 

Cash and liquid assets are, without a doubt, the best way to fund your projects—but only if you have plenty to spare. Don't dip into your emergency funds to pay for that second story.

Some retirement accounts allow you to borrow a certain amount against them. There may be fees, so check ahead of time before borrowing.

Sweat Equity

  • Labor is completely free

  • Satisfying to have total control of your project

  • Only the labor is free; you still have to pay for materials

  • If a learning curve is involved, it still may be cheaper and faster to hire workers

Do you have any willing friends and family? For the price of takeout pizzas, they may help you put some sweat equity into your renovation project.

Some sweat equity is inevitable and even can be fun, but do not stretch it if you are not sure of your abilities.

Zero-Interest Home Remodeling Loans

  • Money in the form of subsidized interest for your loan—subsidies which you do not have to repay

  • Loans are typically capped at between $25,000 and $50,000

  • Property taxes still must be paid by you, including the elevated taxes that come as a result of your home improvement

  • Substantial red-tape

  • Limitations on the types of remodels you can do

Home Improvement Program (or "HIP") loans from your county are not exactly free renovation loans, but they do come close. Counties and other municipalities will subsidize some or all of the interest on your remodeling loan in order to help preserve local housing stock.

In one scenario involving a five-year, $50,000 8-percent loan that is subsidized 3-percent through HIP, your total interest savings would be $4,215.

There is substantial red-tape associated with securing these subsidies, including monitoring of the project, time window for completion, and narrow definition of home-related projects. For example, swimming pools, hot tubs, decks, and other luxury-type items are not financed.

HIPs are not for every homeowner. But if you qualify, it is an unbeatable deal. Just be aware of its limitations.

Home Equity Loan or Line of Credit (HELOC)

  • Lower interest rates than personal loans and credit cards

  • Large amounts of money may be available for large projects like additions

  • If you keep depleting your equity, you reduce the sum you will receive when you eventually sell the house

  • Large amounts available with this loan encourage spending on things unrelated to the renovation

A home equity loan is a classic way to finance home renovations. With this method, you take out a loan against the equity in your own house. Equity is the worth of your house, minus the amount that you have left to pay on it.

Target this loan only for large projects, such as additions, pools, driveways, and siding.

Credit Cards

  • Money available quickly

  • Lucrative points or rewards possible on some cards by charging large home-related purchases

  • Danger of high interest and fees

  • Give you false sense of security that you have more money than you actually have

Using a credit card that you pay off at the end of each month can help you pay for home remodels. Or use a zero-interest card that you don't have to pay off for six months or a year. Some homeowners pay off one zero-interest card with yet another zero-interest card, thereby creating a permanent, but risky, no-interest loan.

Using credit cards is a dicey way to finance home renovations, and one that requires attention and maintenance.