The best ways to finance home improvements

We spend a great deal of time in our homes. They become a part of our history and family. Whether you’ve been living in your home for many years or not long, it may be time for a little extra TLC (tender loving care.)

Home improvement loans are an option for many to pay for home renovations when the cash is just not readily available. There are also more frugal ways to pay for home renovations. We are breaking down answers to the following questions:

  • How to finance a remodel without equity?
  • How to pay for renovations on a new home?
  • How to use home equity for renovations?
  • How to finance home improvements on your mortgage?

Keep reading to find out how you can afford your dream home with renovations.

How to Use Home Equity for Renovations

Home equity loans aren’t a one size fits all arrangement and are tailored to your specific needs. The equity in your home is the amount of ownership you have in your home. That is, the appraised value of our home, minus the amount you still owe on your mortgage. For example, if your home is worth $350,000 and your current mortgage balance is $250,000, you have $100,000 of equity in your home.

Home Equity Loans

A home equity loan is a secured loan that lets you borrow against the equity in your home. Because it’s a secured loan, you can borrow a larger amount of money at a lower interest rate than you’d get with an unsecured loan.

A home equity loan is the best option for you if you have any of these situations…

  • Large fixed cost purchase
  • Want predictable monthly payments
  • Need to access a larger amount of money.

Home equity loans usually are not for you if you only need a small amount of cash. While some lenders will extend loans for as little as $10,000 – most won’t give you one for less than $35,000.

Home Equity Line of Credit (HELOCs)

Home equity lines of credit (HELOCs) are a revolving source of credit, much like a credit card, secured against the value of your home equity.

Unlike the other lump sum options, with a HELOC, you can make withdrawals as needed during the draw period.

Best if you are…

  • Looking for flexibility with regards to how and when you spend the money
  • Want payments which are interest only
  • Want flexible repayment options.

HELOCs tend to have few, if any, closing costs, and they usually have variable interest rates. You’re able to borrow against your credit line at any time, and untouched funds don’t charge interest. These credit lines can also serve as a nice emergency fund.

Cash-Out Refinance

With cash-out refinancing, you replace your existing mortgage with a new one that’s higher than your loan balance – so you can take advantage of the equity you’ve built up on your home.

Best for you if you’re looking for…

  • Lowest cost available
  • Want a single mortgage payment
  • Want to amortize your payments over a longer period of time.

With a cash–out refinance, the new mortgage loan is for more than what you owe on the existing mortgage. The difference between the entire amount of the new loan and what you owe on your current mortgage is paid to you in a lump sum.


At Fraction, we believe the best way to finance home improvements is with a Fraction Mortgage — a first-lien open line of credit that allows you to convert up to 50% of your home equity into tax–free cash. This is done without having to sell your home.

Unlike reverse mortgages, a Fraction Mortgage allows you to check all of the boxes:

  • Stay in your home
  • No monthly payments
  • Qualify at any age
  • No early buyout penalties

How to finance a remodel without equity

If using equity in your home is not a viable option – there are options available to finance a remodel without equity.

Government Assistance

There are many Home improvement loan programs available to help homeowners in the US. From upgrades to modifications and repairs, the Department of Housing and Urban Development has options for you

Some options include: 

  • The HUD Title 1 Property Improvement Loan program.

    This program finances both large and small improvements. Be aware, HUD doesn’t lend money for property improvements. The borrower must be able to repay the loan monthly. Loan amount and repayment terms are limited based on the type of property.

  • The 203(k) Rehabilitation Mortgage Insurance Program.

    This program allows homebuyers and homeowners to borrow an extra $35,000 via their mortgage for home repairs and improvements.

Be aware that some programs are available nationwide, while others can only be accessed at the state or county level. To see if these are available in your area, visit:

Other financing options

Non-HUD programs are also available for homeowners. These include energy efficient modification loans or incentives based on your location.

Check out this list of FAQs about tax credits and find rebates near you for Energy Star products and energy efficiency home improvements.


Personal Loans and Home Renovation Loans

Some lenders market home improvement loans as separate products from their personal loan options.

Unlike Home Equity Loans and Home Equity Lines of Credit, you’ll pay a higher interest rate.

Best option for you if you…

  • Desire alternatives to high cost options such as credit cards
  • Expect an increase in value for the home

Credit Card

Fine for making minor updates to your home, such as upgrading a bathroom vanity or installing a new closet system. But, due to the potential to create a bad debt cycle, credit cards are not recommended for anything other than minor updates.

Some credit cards offer interest–free options on your balance for the first few months. If you’re able to pay off the balance within a few months, you may avoid paying interest. Some offer rewards – you could see a cash back option for home renovations.

Credit cards can be one of the most expensive ways to finance a major home renovation if you’re not equipped to quickly pay the balance. You could face exceptionally high interest rates if you’re unable to pay the balance back before the introductory period.

Best for you if you…

  • Need to fix up a home before a sale
  • Can't access other forms of credit.

Save Up

Besides tapping into government funding, saving up for home renovations is going to be the cheapest option to pay for upgrades.

You may attempt to cut back on discretionary purchases to save money for a few months. By doing this, you’ll  be able to pay for a home renovation in full without borrowing from a lender.
This can however delay your project for months which is not ideal for many.

As this has proven to be a difficult task for many, the chances are you wouldn’t be reading this article if this was an option.

Get a Fraction Mortgage

With our Fraction Mortgage, you can unlock up to $1.5M of your home equity while staying in the home you love. Plus, there are no monthly payments or unfair interest rates.

Without the added pressure of monthly payments, you don’t have to cut back on discretionary expenses and can live life everyday with greater financial flexibility. We also protect your home equity by automatically dropping your interest rate to the bare minimum possible. As your home appreciates, we’ll cap your interest rate so you hold on to more of your money – after some time, resulting in building wealth.

The process is simple – apply, approve, receive funds, and check in. Contact us today to get started with an estimate.

Interested in seeing what Fraction’s Appreciation Mortgage looks like for your home?

Get an estimate

Interested in seeing what a Fraction Mortgage looks like for your home?

Get an estimate