Compare Common Renovation Financing Options

There are pros and cons to every renovation financing solution, and the right one for you depends on your individual goals and current circumstances. Read about some of the most common options below.

Home equity investment

HEIs allow you to access the equity you’ve built in your home without a loan. You receive cash in exchange for a share of your home’s future value.

What do I need to know?

• You receive the cash in a lump sum
• There’s no interest or monthly payments
• You typically need at least 25% equity in your home to qualify
• Because it’s an investment and not a loan, you have until the end of the established timeline to settle via refinance, buyout with savings, or home sale

Who qualifies?

• Typical credit score: 600+
• Average LTV Max: 75%
• Average DTI: N/A

Is a home equity investment a fit for me?

A home equity investment is often a good fit if you:

• Need cash relatively quickly. For example, many homeowners use the cash from a home equity investment to make critical repairs or renovations.
• Don’t want or can’t afford monthly payments
• Are looking to fund a major renovation, as you may be able to qualify for up to 75% of your home’s value

When is a home equity investment not a fit for me?

A home equity investment might not be a good fit if you:

• Don’t have enough equity in your home to qualify

Home equity loan

Home equity loans allow you to borrow against the equity you’ve accrued, using your home as collateral to guarantee the loan.

What do I need to know?

• You receive the cash in a lump sum
• The interest rate is typically fixed
• The loan doesn’t replace your original mortgage, but is a second mortgage
• The loan is paid back via monthly payments

Who qualifies?

• Typical credit score: 620 min.
• Average LTV Max: 80-85%
• Average DTI: 43%

Source: LendingTree

Is a home equity loan a fit for me?

A home equity loan is often a good fit if you:

• Need a lump sum of cash for one-time expenses, like home renovations
• Have built up a significant amount of equity in your home
• Want to access your equity while keeping your low-interest mortgage rate

When is a home equity loan not a fit?

A home equity loan might not be a good fit if you:

• Don’t want to or can’t afford to take on additional monthly payments beyond your original mortgage
• Aren’t prepared to handle the often lengthy and stringent application and approval process

Home equity line of credit

A HELOC is a line of credit borrowed against the equity you have in your home — allowing you to borrow, spend, and repay as you go.

What do I need to know?

• As a line of credit, a HELOC gives you the flexibility to access cash as often and as much as you need it, up to a maximum amount
• Interest rates are typically variable
• You pull money out during a designated draw period, during which you’ll typically make lower payments, and pay back the balance during a subsequent repayment period

Who qualifies?

• Typical credit score: 620 min.
• Average LTV Max: 80–85%
• Average DTI: 43%

Source: LendingTree

Is a HELOC a fit for me?

A home equity line of credit is often a good fit if you:

• Want or need the ability to access cash on an ongoing basis for recurring expenses
• Aren’t sure of the exact amount of money you’ll need for your project

When is a HELOC not a fit for me?

A home equity line of credit might not be a good fit if you:

• Aren’t comfortable with the unpredictability of monthly payments due to variable interest rates
• Need a lump sum of cash for a one-time expense

Cash-out refinance

A cash-out refinance replaces your existing mortgage with a new home loan for more than you currently owe on your house.

What do I need to know?

• You’re replacing your existing mortgage with a new one for more than you currently owe
• You’ll receive the difference in a lump sum

Who qualifies?

• Typical credit score: 620 min.
• Average LTV Max: 80%
• Average DTI: 50%

Source: NerdWallet

Is a cash-out refinance a fit for me?

A cash-out refinance is often a good fit if you:

• Are able to qualify for better loan terms than you currently have, while also getting cash for your equity to make value-add home updates
• You want the reliability of predictable monthly payments

When is a cash-out refinance not a fit for me?

A cash-out refinance might not be a good fit if you:

• Don’t want to deal with the closing costs and fees associated with taking out a new mortgage
• Have a lower credit score and can’t secure a low enough interest rate
• Want to keep your current mortgage due to good terms and/or a low interest rate

Credit card

A credit card is often used in place of cash or a check and gives you access to an unsecured, revolving line of credit with a maximum limit.

What do I need to know?

• Credit card financing allows you to fund renovations without taking out a loan
• They’re convenient and, when used responsibly, low risk compared to other financing options
• A minimum monthly payment is required once any introductory offer period has expired

Who qualifies?

• Typical credit score: 600+
• Average LTV Max: N/A
• Average DTI: At or below 43%

Sources: SoFi, U.S. News & World Report

Is a credit card a fit for me?

A credit card is often a good fit if you:

• Are financing a large, one-time purchase and can pay off the balance in full
• Can take advantage of rewards or — if opening a new card — introductory offers, welcome bonuses, and discounts

When is a credit card not a fit for me?

A credit card might not be a good fit for homeowners who:

• Are financing a variety of ongoing improvement projects that have the risk of becoming more expensive than anticipated
• Aren’t prepared to pay the often-high APR that takes effect after an introductory 0% period

Personal loan

A personal loan is provided by a traditional lender like a bank, and isn’t based on home equity, but can still be used to renovate your home.

What do I need to know?

• You receive the cash in a lump sum
• Unlike other options, you’re not borrowing against your home
• These loans have fixed interest and repayment terms

Who qualifies?

• Typical credit score: 580 min.
• Average LTV Max: N/A
• Average DTI: 35% or less

Source: LendingTree

Is a personal loan a fit for me?

A personal loan is often a good fit if you:

• Need a lump sum of cash for a one-time expense
• Need to receive your funds fairly quickly — many lenders even offer next-day funding once you’re approved

When is a personal loan not a fit for me?

A personal loan might not be a good fit if you:

• Don’t want to or can’t afford to take on additional monthly payments beyond your mortgage
• Need more time to pay the loan off; while some home equity options have terms of up to 30 years, most personal loans have short terms of 2–7 years