Skip to Main Content

How to Finance Home Renovations

Home Renovations

If you’re planning a home improvement project, you may be wondering whether it’s better to finance your renovations or pay in cash, as well as what your best options are if you do take out a loan. We’re here to help you answer all those questions and more, so you can find the perfect fit for your wallet and turn your vision into reality.

Home Equity Loans vs. HELOCs

A home equity loan allows you to borrow a lump sum of money against the equity you have built up in your home. Your home’s equity is calculated using your home’s current value minus any liens against it, such as your mortgage. For example, if your home is worth $500,000 and you have $100,000 left on your mortgage, which is your only lien, you have $400,000 in home equity. Depending on your financial history, lenders may let you borrow up to 80-85% of home equity. 

This loan typically comes with a fixed interest rate and a fixed repayment term, making it an excellent option if you prefer predictable monthly payments. Home equity loans are ideal for larger renovation projects with a clear budget. 

A HELOC, on the other hand, works more like a credit card. Instead of receiving a lump sum, you get a line of credit that you can draw from as needed, up to a certain limit. HELOCs usually have variable interest rates, which means your payments can fluctuate. They offer greater flexibility, making them suitable for ongoing or smaller projects where expenses might be spread out over time. 

If you are looking to make energy efficient upgrades, you may be eligible for a home improvement loan. Service Credit Union offers this loan as a fixed rate second mortgage. With this loan, you can borrow up to 133% of your home’s current value to use toward home improvement, including upgrades to heating systems and adding energy efficiency items such as solar panels or new windows.  

Learn more about the benefits and differences between home equity loans, home improvement loans and HELOCs.

Are Renovation Loans Hard to Get?

Obtaining a renovation loan is not inherently difficult, but it does require meeting certain criteria. Lenders will evaluate your credit score, income, existing debt, and the amount of equity you have in your home. The specific requirements can vary depending on the type of loan you choose and the lender’s policies. 

At Service Credit Union, we strive to make the process as straightforward as possible. We offer competitive rates and personalized assistance to help you navigate your options and secure the financing you need.

Is it Better to Finance Renovations or Pay Cash?

The decision to finance renovations or pay cash depends on your financial situation and goals. 

Paying cash for renovations means you won’t incur any debt or interest charges. If you have sufficient savings, this can be a stress-free way to fund your improvements. However, using cash reserves can deplete your savings, leaving you with less liquidity for emergencies or other investments. 

Financing renovations allows you to spread the cost over time, preserving your cash reserves.  Additionally, some renovation loans offer tax-deductible interest, potentially providing a financial benefit. 

Ultimately, consider your current financial health, the scope of your project, and your long-term financial goals when deciding whether to finance or pay cash.

What Credit Score Do You Need for a Home Renovation Loan?

Credit score requirements for home renovation loans can vary, but generally, a good credit score can help you secure better terms and interest rates. Most lenders look for a minimum credit score of around 620-640. However, a score of 700 or higher can significantly improve your chances of approval and offer more favorable loan terms. 

At Service Credit Union, we understand that each member’s financial situation is unique. We work with you to find the best solution tailored to your needs, considering various factors beyond just your credit score.  

If you’re ready to start your home renovation journey, learn more about our lending options.