Best Ways to Finance Your Home Renovation
Education
| 07.09.2025
Renovating your home is an exciting way to bring new life to your home. Whether your dreams consist of a new kitchen, a cozy patio or a total house transformation, the cost can seem daunting. The upside? With smart planning, financing alternatives and the right resources, bringing those renovation dreams to life doesn't have to drain your wallet.
Curb appeal improvements can also increase the value of your home. These can enhance the attractiveness of the house to potential buyers, even if you're not in the market to sell. Types of improvements include landscaping, fresh exterior paint, new windows or doors and better siding. You could also improve your home’s appeal by expanding your living area by finishing a basement or building an addition, or by improving your outdoor space with features like decks, patios or gardens.
Energy-saving updates may also increase your home value and as an added bonus, lower your utility bills over time. Two common ones include solar panels or better insulation. Similarly, smart home technology such as a new security system, thermostats and LED lighting adds functionality to your home that improves daily life and appeals to potential buyers.
Other small upgrades, such as updating cabinet hardware, installing new faucets and showerheads, or switching to newer, more fashionable lighting fixtures, can instantly change the ambiance of a room and give spaces a fresh look without the expense of a full room remodel. If flooring is an issue, vinyl is a budget-friendly option that gives the same look as pricier materials like laminate or wood.
For outdoor spaces, aesthetic landscaping improvements are a great way to make your house more welcoming to guests or potential buyers. Smaller projects like starting a garden, adding potted plants or installing solar lights can accomplish this at a lower expense to your wallet. These changes may improve the look of your home without costing too much out of pocket.
If you’re looking for upgrades that directly improves your home’s energy efficiency, consider adding new weather-stripping to your existing doors and windows. If done correctly, this could lower your utility bills over time and add value to your home.
Home equity loans are a popular option for big renovations because they allow you to access funds based on the equity in your home. They often come with lower, fixed interest rates compared to other types of loans, making it easier to manage your budget with predictable monthly payments. The interest on these loans is also often tax-deductible if used for significant home improvements. Make sure to consult with a qualified tax advisor or professional to discuss your specific circumstances before making any financial or tax-related decisions.
Another option is a home equity line of credit (HELOC), which offers flexibility to withdraw funds as needed, making it ideal for covering unexpected renovation expenses or for projects with uncertain timelines. Unlike a fixed-rate home equity loan, HELOCs typically have variable interest rates, meaning your payments can fluctuate.
Renovation loans are a little bit different than home equity loans because they’re based on the projected value of the home after improvements, not its current value. This type of loan is ideal if you’re purchasing a home that needs updates or planning improvements to your current space, but without the need for you to have significant equity in your home. While there are additional steps, like submitting project estimates and post-renovation appraisals, this type of loan opens the door to home upgrades sooner rather than later.
Construction loans are another option for a major renovation or rebuilding project, especially when the work is extensive or structural. These short-term loans are designed to finance the cost of building or making major renovations and are typically converted into a standard mortgage after the work is completed. Funds are usually disbursed in stages based on project milestones, offering more control over larger or custom projects.
For minor projects, a personal loan might be the way to go. These loans do not use your home as collateral, which can make them easier to qualify for and quicker to acquire, especially for those who have little to no home equity. However, they typically come with higher interest rates compared to home equity-based loans.
Each option has its own benefits. Do your research and meet with a local lender to discuss which option best meets your needs and financial situation.
A traditional mortgage is used solely to purchase a home. It’s based on the property’s current value and does not include extra funds for renovations or repairs. If you're buying a fixer-upper and want to make improvements, you'd typically need to secure additional financing beyond your standard mortgage.
A home equity loan is based on the amount of equity you’ve built in your existing home. The bank determines your maximum loan amount and interest rate based on this equity, meaning you’ll need to have a certain percentage of your mortgage already paid off to qualify. This type of loan is a strong option if you already have significant equity and want a lump-sum financing option with predictable, fixed payments.
A renovation loan, on the other hand, is designed specifically for home improvements, even if you have little equity. These loans are based on the home’s future value after renovations are completed, empowering homeowners to start renovations right away without waiting to build equity. However, the process often involves additional steps, such as submitting a work estimate and providing an appraisal after the improvements. Merchants Bank offers renovation loans that may be used to update your current home or remodel a newly purchased property.
Feeling inspired but not sure where to start? We recommend speaking with a knowledgeable lending specialist to discuss your specific goals and explore the solutions best suited to your financial needs. With the right guidance and resources, your home improvement plans can become a reality.
Speak with one of our Mortgage Lenders today. Subject to approval. Equal Housing Lender.
What home improvements add the most value?
Kitchen and bathroom remodels are always at the top of the list for return on investment. By freshening these areas with new appliances, updated countertops and lighting, you could potentially increase your home’s market value and, in turn, your equity.Curb appeal improvements can also increase the value of your home. These can enhance the attractiveness of the house to potential buyers, even if you're not in the market to sell. Types of improvements include landscaping, fresh exterior paint, new windows or doors and better siding. You could also improve your home’s appeal by expanding your living area by finishing a basement or building an addition, or by improving your outdoor space with features like decks, patios or gardens.
Energy-saving updates may also increase your home value and as an added bonus, lower your utility bills over time. Two common ones include solar panels or better insulation. Similarly, smart home technology such as a new security system, thermostats and LED lighting adds functionality to your home that improves daily life and appeals to potential buyers.
What are the best renovations for a small budget?
There are also other upgrades you can make in your home that make a big impact without needing to spend thousands of dollars. One of the easiest is repainting your rooms with neutral shades to help it feel more modern and renovated at a small expense. You can also add a new backsplash in the kitchen to add a fun, focal point to the room.Other small upgrades, such as updating cabinet hardware, installing new faucets and showerheads, or switching to newer, more fashionable lighting fixtures, can instantly change the ambiance of a room and give spaces a fresh look without the expense of a full room remodel. If flooring is an issue, vinyl is a budget-friendly option that gives the same look as pricier materials like laminate or wood.
For outdoor spaces, aesthetic landscaping improvements are a great way to make your house more welcoming to guests or potential buyers. Smaller projects like starting a garden, adding potted plants or installing solar lights can accomplish this at a lower expense to your wallet. These changes may improve the look of your home without costing too much out of pocket.
If you’re looking for upgrades that directly improves your home’s energy efficiency, consider adding new weather-stripping to your existing doors and windows. If done correctly, this could lower your utility bills over time and add value to your home.
What’s the best way to finance a home renovation?
There are many different financing options that suit various home remodeling needs. The best financing option for your home renovation depends on the size of the project and your available budget.Home equity loans are a popular option for big renovations because they allow you to access funds based on the equity in your home. They often come with lower, fixed interest rates compared to other types of loans, making it easier to manage your budget with predictable monthly payments. The interest on these loans is also often tax-deductible if used for significant home improvements. Make sure to consult with a qualified tax advisor or professional to discuss your specific circumstances before making any financial or tax-related decisions.
Another option is a home equity line of credit (HELOC), which offers flexibility to withdraw funds as needed, making it ideal for covering unexpected renovation expenses or for projects with uncertain timelines. Unlike a fixed-rate home equity loan, HELOCs typically have variable interest rates, meaning your payments can fluctuate.
Renovation loans are a little bit different than home equity loans because they’re based on the projected value of the home after improvements, not its current value. This type of loan is ideal if you’re purchasing a home that needs updates or planning improvements to your current space, but without the need for you to have significant equity in your home. While there are additional steps, like submitting project estimates and post-renovation appraisals, this type of loan opens the door to home upgrades sooner rather than later.
Construction loans are another option for a major renovation or rebuilding project, especially when the work is extensive or structural. These short-term loans are designed to finance the cost of building or making major renovations and are typically converted into a standard mortgage after the work is completed. Funds are usually disbursed in stages based on project milestones, offering more control over larger or custom projects.
For minor projects, a personal loan might be the way to go. These loans do not use your home as collateral, which can make them easier to qualify for and quicker to acquire, especially for those who have little to no home equity. However, they typically come with higher interest rates compared to home equity-based loans.
Each option has its own benefits. Do your research and meet with a local lender to discuss which option best meets your needs and financial situation.
How is a renovation loan different from a traditional mortgage or Home Equity Loan?
If you’re planning home improvements, you might be wondering whether a traditional mortgage, home equity loan or renovation loan is the right choice.A traditional mortgage is used solely to purchase a home. It’s based on the property’s current value and does not include extra funds for renovations or repairs. If you're buying a fixer-upper and want to make improvements, you'd typically need to secure additional financing beyond your standard mortgage.
A home equity loan is based on the amount of equity you’ve built in your existing home. The bank determines your maximum loan amount and interest rate based on this equity, meaning you’ll need to have a certain percentage of your mortgage already paid off to qualify. This type of loan is a strong option if you already have significant equity and want a lump-sum financing option with predictable, fixed payments.
A renovation loan, on the other hand, is designed specifically for home improvements, even if you have little equity. These loans are based on the home’s future value after renovations are completed, empowering homeowners to start renovations right away without waiting to build equity. However, the process often involves additional steps, such as submitting a work estimate and providing an appraisal after the improvements. Merchants Bank offers renovation loans that may be used to update your current home or remodel a newly purchased property.
Your partner in home renovations
At Merchants Bank, we understand that home renovations represent a meaningful investment in both your property and your future. Whether you’re considering minor updates or a complete remodel, selecting the right financing option, such as a home equity loan, construction loan or renovation loan, is an important part of the planning process.Feeling inspired but not sure where to start? We recommend speaking with a knowledgeable lending specialist to discuss your specific goals and explore the solutions best suited to your financial needs. With the right guidance and resources, your home improvement plans can become a reality.
Speak with one of our Mortgage Lenders today. Subject to approval. Equal Housing Lender.
