Home Improvement Financing 101

You spent hours exploring open houses, finding postings online, and researching with your realtor to find your home.

Now that you’re moved in, wouldn’t you agree that you owe it to your home–and bank account–to make smart financial decisions about improving your living space?

Here’s a quick way to start figuring out the financials:

Our renovation financing calculator lets you explore how project cost, credit score, APR, and term impact your monthly costs and total payment on the four most common home improvement financing options.

Here’s how to use the Hearth Home Improvement Financing Calculator.

Step 1: Estimate How Much Your Remodel Will Cost

Get a rough idea of how much your project will cost before using our calculator.

Since material costs differ across cities, start by researching what your project would cost locally with the designs on your to-do list.

Once you’ve got a ballpark estimate, consult a contractor for a walkthrough. You can find great contractors on BuildZoom or get recommendations from neighbors or family.

You’ll want to interview your three top choices (or more!) to collect bids on your project, which will give you a more accurate picture of your project’s cost.

Once you have a good picture of your project costs, you’re ready to move to the next step - using our home improvement financing calculator to find the right payment option.

Step 2: Add Estimated Credit Score and Cost

Knowing what your remodel will cost gives you a sense of what you can afford.

That’s why our renovation calculator lets you compare options.

How does our remodel financing calculator work?

Let’s start at the top.

You’ll see two options: your project cost and your credit score.

Once you’ve nailed down a project cost from your contractors, enter your estimated cost into our renovation financing calculator to get initial estimates of the total cost of financing your remodel.

Next, enter an estimate of your credit score, which also impacts your total cost.

As a general rule of thumb: people with higher credit scores tend to get lower interest rates, which generally means a lower overall remodel cost. Here’s how the calculator breaks down credit scores:

  • Excellent: 720-850
  • Good: 690-719
  • Average: 630-689
  • Poor: 350-629

Step 3: Compare Renovation Financing Options

Our remodel financing calculator tells you how term length - the length of your loan - and annualized percentage rate (APR) - the interest rate and fees of your loan - affect the cost of your renovation.

Let’s say you’ve decided on that master bath upgrade (finally!).

Maybe you learn from contractors that the project will cost you $20,000. You also know you have a good credit score.

Our home improvement financing calculator uses APRs based on the national average for someone of the credit score you entered. Before you change the APRs in the calculator, you see a personal loan is the cheapest option for your renovation.

“But wait!” You think. “What if my credit card has 0% APR for one year? Now, what’s my cheapest option?”

You can edit each payment option to personalize your price estimates.

For the same bathroom renovation, one year interest free on your credit card makes a huge difference. Now, using your card is your cheapest option.

Keep in mind if you opt for a 0% APR credit card, be careful to pay your bills in a timely manner. Many homeowners push off their home improvement payments until their 12-month grace periods runs out, and they begin owing double-digit interest on their renovation purchases.

The term, or length of your loan, also affects your overall home improvement cost - and the price of your monthly payments. Holding everything else equal, longer terms typically mean lower monthly payments.

But with a longer term, you have to ask yourself: do you really want to be paying off your remodel for the next 30 years?

Personal loans have among the shortest terms of these four common payment options in our renovation financing calculator. Most personal loans aren’t subject to prepayment penalties like home equity loans or lines of credit. Keep in mind personal loans aren’t tax deductible like home equity loans or lines of credit, and tend to have higher rates than these secured options.

For example, holding the APR constant, changing the term from 7 to 3 years on a personal loan saves you nearly $10,000 on the original $20,000 loan you need for your bathroom. However, longer terms are typically associated with higher rates - so make sure to change APRs as you explore different terms.

Selecting the Right Payment Option

To get the most of our remodel financing calculator, it’s worth spending just a few more minutes learning about each payment option.

The home improvement financing you select should be a good fit for you and your bank account - but it should also be a perfect match for your project.

Here’s how you know if the home improvement financing option you’ve chosen is a good fit:

  • Credit cards are the easiest form of financing to use - but if you can’t pay off your balance right away, you could be subject to record-high average interest rates. Contractors may also charge extra fees for credit card use. Use cards for small projects you can pay back quickly or, better yet, turn to cash if it won’t drain your savings.

  • Personal loans get funds into your bank account as soon as tomorrow. These loans typically have lower rates than credit cards (but higher rates than secured options), have 3-7 year repayment terms, and don’t require home equity. They’re best for moderate-to-large projects on a tight timeline, especially if you don’t have equity to spare.

  • Home equity lines of credit generally let you draw money from your home for 10 years, then repay for 15 years. These loans require home equity, are usually variable rate, and take one month to release funds. They’re best for big budget projects or many renovations over a long period of time - but they require home equity.

  • Home equity loans eventually get you a lump sum of money, but the approval process typically takes one month. They have 15-30 year terms, require your home as collateral, and are tax deductible. They’re best for big budget projects that aren’t on a timeline - but only if you have home equity.

If you’re interested in learning more about home improvement financing - or want to explore another payment option not in our calculator - our definitive guide on home improvement loans provides an overview of each remodel financing option. Our guide is informed by personal finance experts to help you find which home improvement financing method best fits you, your home, and your bank account.