Paying for your home improvements

Let’s talk about your borrowing options

Paying cash for home improvements is great but there may be low-cost borrowing options available too, if you need them.

1. Home equity loan

A home equity loan lets you borrow against the equity in your home.

Pros: Interest may be tax-deductible when used for home improvements—interest on up to $750,000 of mortgage and home equity debt, combined, may be deductible for married taxpayers filing jointly¹

Because the loan is secured by your home, interest rates are lower than those on unsecured loans

Cons: Because the loan is secured by your home, falling behind on payments could lead to foreclosure in a worst-case scenario

2. Home equity line of credit

A home equity line of credit (HELOC) is an open line of credit you can use at any time, for a set number of years, to borrow against home equity.

Typically, HELOCs offer lower interest rates than unsecured loans
Flexible and convenient

Cons: May have variable interest rates—which means payments could increase if interest rates go up

Falling behind on payments could put your home at risk

3. Cash-out refinance

Refinancing your mortgage allows you to take money out of home equity and start over with a new loan.

Pros: Depending on your original loan terms, you may get a lower interest rate on your new loan if you refinance for a shorter period of time or if prevailing interest rates are low

Cons: You do have to go through the mortgage process again which can include an appraisal and loan fees

The cost of a new mortgage may negate the potential advantage of using home equity instead of borrowing
You could end up with less favorable terms than your original loan

4. FHA home improvement loan³

The FHA-insured Title 1 Home Improvement Loan can help homeowners without a lot of equity make their home more useful and livable. For a single-family home, you may be able to borrow up to $25,000 for as long as 20 years. You must own the home and the home must have been occupied for at least 90 days.

Pros: May be able to borrow up to $7,500 unsecured by the home

There is no credit score or income requirement for loan approval

Cons: The FHA mortgage insurance premium will be included in the cost of the loan

May need to verify that the loan proceeds were used for home improvement
The loan limit is $25,000

5. Credit card

Credit cards offer an unsecured line of credit. Your credit limit and the interest rate are based on your credit score.

Pros: Convenient and flexible

Promotional interest rate offers can make the cost of borrowing low
Credit card rewards can pay you back when you spend

Cons: Very high interest rate if you carry a balance from month to month without using a promotional offer

Credit cards nearly always have a variable interest rate so if interest rates go up, your rate can go up too

6. Personal loans

A personal loan is a fixed-rate, unsecured loan.

Pros: Fixed interest rate so you always know what your payment will be

Cons: May be fees associated with applying and taking out the loan

Interest rates on unsecured loans tend to be higher than those on secured loans