Man installs cabinets
Viktor Pravdica/Adobe Stock

Whether you’ve been in your home for decades or just a few months, sometimes it needs a little extra love.

But money to make home improvements — whether massive overhauls or little fixes — isn’t always readily available in your bank account. Luckily, you have a few different options to pay for home renovations if your cash flow is running low.

Personal loans

Getting a personal loan is a great option for mid-size projects on your home, such as a bathroom makeover or window replacements. Whether you’re hiring a professional contractor or doing the work yourself, a personal loan can help offset some of the costs or pay for the entire project.

Get pre-qualified

Answer a few questions to see which personal loans you pre-qualify for. The process is quick and easy, and it will not impact your credit score.

Pros

  • Variety of different lenders: You can apply for a personal loan through banks, credit unions and a number of different online lenders. You have the chance to review the best personal loan lenders that offer the lowest interest rates, smallest (or no) fees, friendly repayment terms and a quick payout.
  • Unsecured loans: Personal loans are unsecured loans, which means you don’t need to use your house as collateral to qualify. Your interest rate and qualification are based on your credit score.
  • Fast payment: Once you agree to terms, many lenders deposit money straight into your account in as little as a day.

Cons

  • Possibly high interest: Since personal loans are based on your credit score, you may qualify for a loan but it could cost you more in interest if your creditworthiness is rated fair to poor. The lower your credit score, the higher the interest rate you’ll pay.
  • More fees: Some lenders charge fees for application processing, late payments and even prepayments. When reviewing personal loan lenders, see which ones charge fewer fees.

Home equity line of credit (HELOC)

A HELOC provides an ongoing stream of money for you to use when you need it, up to the limit you were approved for. The HELOC’s revolving line of credit is similar to a credit card, except the “draw period” has an end date, usually up to a decade. After that, any unpaid money gets converted into a fixed home loan.

Pros

  • Lower interest rate: Because a HELOC is a secured loan — backed by your home — you can qualify for lower interest rates than you would for an unsecured personal loan.
  • Take what you need: Since a HELOC is a stream of revolving credit, you can take what you need, when you need it. For ongoing or lengthy home renovation projects, a HELOC may be a good option.

Cons

  • Your home is collateral: Interest rates are lower with HELOCs because you’re using your home to secure the funds. But there’s a downside: If you don’t make payments on time, your home could get foreclosed on.
  • You need home equity to get cash: In order to borrow against your house, you must have sufficient home equity, a term to describe a home with an appraised value that’s more than what’s owed on the home.
  • Variable interest rates: Most HELOCs have variable interest rates, which means your payments can increase depending on market conditions.

Home equity loan

Instead of a HELOC, you can get a home equity loan, sometimes referred to as a second mortgage. This is a loan paid out in a lump sum that you can repay over a number of years in regular fixed monthly payments.

Pros

  • Fixed interest rate: You don’t have to worry about market fluctuations; once you lock in your fixed interest rate, you pay the same monthly payment over the life of your loan.
  • Get what you need: If you know exactly how much your project will cost, a home equity loan might be perfect for your needs. You won’t have to worry about taking out more than you need and paying interest on it.
  • Versatile needs: If you need some extra cash to consolidate your debt or pay off student loans, you can get a home equity loan.

Cons

  • You could lose your home: Missing payments can significantly hurt you. Since this type of loan also uses your home as collateral, your home could get foreclosed on if you fall too far behind on payments.
  • Higher interest: You might be faced with higher interest in home equity loans compared with other options, like refinancing.

Refinancing your mortgage

Refinancing replaces your current mortgage with a new one and gives you a new interest rate. You get to pocket the difference if the new loan is bigger than the old one. You can use those extra dollars from a cash-out refinance to make your home improvements.

Pros

  • Lower interest: If you’re refinancing when there’s been a drop in rates, you can secure a lower interest rate than what you’re paying now.
  • Extra cash: While most of the cash can go towards your home renovations, you may have enough left over to pay down other debt or stash cash into an emergency fund.

Cons

  • Fees: You’ll need to pay for an appraisal, origination fees, taxes and other closing-related costs.
  • Longer payoff period: Unless you refinance your mortgage for a shorter term, you’re going to be extending the life of your loan. This means it will take you longer to pay it off.
  • A lower interest rate isn’t guaranteed: Refinancing is only a good idea if you can secure a lower interest rate than what you pay now. If not, it’s not really worth it.

Credit cards

If you’re making minor updates to your home, like upgrading a bathroom vanity or installing a new closet system, you may consider using your credit card.

Pros

  • Possibly interest-free: If you’re using a 0 percent introductory APR card, you could pay for minor home improvements without ever paying interest.
  • Earn cash back: The more you spend on a renovation, the more cash back you can earn if your credit card offers cash-back perks.

Cons

  • Really high interest: If you can’t pay back your balance before the introductory offer expires, you could face exceptionally high interest rates — much higher than personal or home equity loans. And If you don’t use an introductory offer card and use your regular card, you’ll need to pay back the entire amount by your next pay period — usually a month — if you want to avoid interest.
  • Variable interest: Not only would you be paying high interest, but that amount could rise as market conditions shift.

Government loans

If you qualify for a government loan, you could save on the cost of interest and insurance.

FHA Title 1: You can borrow up to $25,000 without having any equity in your home. This is a good option if you’ve recently purchased your home and need to make some upgrades. However, the money must go towards renovations that improve the livability of the home, and some upgrades may not qualify.

VA cash-out refinance loan: This type of loan will guarantee 100 percent of the value of your home. In the event you can’t make payments, the VA loan guaranty is the “insurance” that it provides to your lender.