Other options

Home Equity Loan or Home Equity Line of Credit - HELOC

A home equity loan provides you with a lump sum of cash at a fixed interest rate by borrowing against the equity you’ve built in your home. With this option, you have consistent monthly payments, with a typical repayment period of between five to 30 years. 

One of the biggest benefits of using a home equity loan for home renovations is that the interest is tax deductible, which will save you thousands of dollars over the life of your loan.   

A HELOC is a loan that lets you borrow against the equity in your home and functions like a credit card that you can access the funds for a period of time (usually 10 years), and then pay back over a repayment period (usually 20 years). A HELOC is useful when you don’t know exactly how much money you’ll need, or for how long, because you can continually make withdrawals over time as you need more funds, or not take out your entire line of credit if you need less.

You can get hit with sticker shock once your repayment period begins, and you won’t have started paying down your principal balance yet. A HELOC also has a variable interest rate, which means your payments can fluctuate monthly, unlike with a home equity loan. Be sure to plan for a range when you budget your monthly HELOC payment.

Contact your mortgage lender or other banks to inquire about a home equity loan or HELOC.

Only borrow what you need. Remember, your home is used as collateral. This can be a cost-effective option if you have a good amount of equity in your home and interest rates are low. Watch out for adjustable rates in HELOCs. They can start low and increase significantly over time.

Cash-out mortgage refinance

A cash-out refinance replaces your existing mortgage with an entirely new mortgage and provides a homeowner with a lump sum of cash to use for such projects as home renovations. That lump sum gets added back to the balance of your new mortgage and can be paid off as one monthly payment, usually at a lower interest rate than the original mortgage.

Use a refinancing calculator to make sure you're actually saving money, after factoring in closing costs. Refinancing can be a good option if current interest rates are lower than your existing rate. But remember there are closing costs involved.

Be aware that extending the term of your loan might lower your monthly payments but increase the overall cost.

FHA 203(k) loan

A FHA 203(k) loan is a home renovation loan secured by the Federal Housing Administration that allows a qualifying homeowner to roll the cost of home renovations into their mortgage, creating one loan. This consolidates your borrowing costs and your mortgage into one monthly payment, simplifying the repayment process. There are benefits to FHA 203(k) loans, such as the option for upfront funding, but a major downside is that your renovation work must be completed within six months.

Personal loan

A personal loan will usually have a higher interest rate than an equity loan because it isn’t secured and is riskier for the bank. A typical repayment period is 10 years, but the terms of the loan will vary by lender. This type of credit can be easier to approve because you don’t have to be a homeowner to qualify. But as with any loan, the higher your credit score, and the healthier your financial life, the lower the interest rate you’ll receive.

Contact banks or other lending institutions to inquire about personal loans. Compare interest rates and terms. Many different institutions offer personal loans. Shop around and make sure to read the terms carefully. Also consider online lenders, as they might offer more competitive rates.

401(k) Loan

With a 401(k) loan, you borrow money from your retirement savings account. Depending on what your employer's plan allows, you could take out as much as 50% of your savings.

401(k) loans don’t depend on or impact your credit scores, they may have a low interest rate and you’ll pay yourself back.  With a 401(k) loan, you can get a low-rate loan without a credit check and then pay yourself back.

Contact your 401(k) provider to inquire about loan options. Only borrow if you're sure you can pay it back on time. If not, penalties and taxes can be significant.

Consider the impact on your retirement savings. Remember, you lose out on investment gains when you borrow from your 401(k).

Crowdfunding

This is less conventional and success can be variable. However, it can be an option if you have a compelling story and a wide network of potential supporters. Have a clear, compelling message about why you need the funds.

First Steps: Set up a crowdfunding campaign on platforms like GoFundMe or Kickstarter. Be prepared to market it.

Share your campaign widely on social media, email, and other platforms to reach as many potential donors as possible.