FINANCIAL ADVICE | home improvement

Complete Guide to Financing Home Improvements

Published March 18, 2019

Key Takeaways

  • The first thing you need to do in planning your home improvement project is to figure out exactly what your goals.
  • Your budget and your scope go hand in hand.
  • Securing financing can be make-or-break for your home improvement project.

Setting your scope and budget

Many homeowners dream of renovating their homes top to bottom but will often settle for making smaller improvements over the years. If you’re serious about taking on a major project (roughly $25,000 or more), congratulations! You’ve made it farther than most people, but you still have a lot of work ahead of you.

Set your scope

The first thing you need to do in planning your home improvement project is to figure out exactly what your goals are and which areas of the home you want to update. It could be a complete kitchen remodel or a multifaceted project addressing several parts of the house. You may have detailed ideas like, “Install new gray, quartz countertops,” or more general aspirations like, “Make the living room feel brighter and more spacious.” Both kinds of goals are helpful in determining your scope because they can provide a specific direction for the project, or allow for some creativity as you learn more about your options.

Set your budget

Your budget and your scope go hand in hand, and your scope will likely change as you start getting bids and seeing how much things really cost. If the projected costs are more than you expect (which is likely), you may have to reduce your scope to something less ambitious. Start by doing some research on average project costs to get a sense of what you can afford to take on. Then look at your finances and set a maximum budget for your project.

Types of financing

Securing financing can be make-or-break for your home improvement project, but that doesn’t mean it has to be scary. To help figure out what will work best for you, here are some of the most common financing options:

Home equity loan

A home equity loan allows you to borrow money using the home equity you’ve built as collateral. These loans are considered a second mortgage, often come with fixed rates and are paid out in one lump sum. This means it’s very important you apply for enough funds to cover the full cost of your project so you don’t come up short with your financing.


HELOC stands for “home equity line of credit” and just like a home equity loan, a HELOC uses your home equity as collateral to secure financing. But unlike a home equity loan, with a HELOC, the credit becomes available again as you pay it back. This is similar to a credit card in which you can continue to borrow, as long as you make your payments and meet all other loan conditions. This loan provides flexibility when you apply for a line for more than the projected cost of the project because you can take another draw on funds if your project runs over budget.

It’s important to consider the timing when planning on using the equity in your home for financing as it will typically take 30 to 45 days to go from application to actually receiving your funds.

Cash-out mortgage

Getting a cash-out mortgage is also known as refinancing or a cash-out refi. Basically, you’ll take out a new mortgage on your house and receive the equity you’ve built as cash that you can use to pay for home improvements. So, for example, if you owe $100,000 on a house worth $300,000, you could refinance for $150,000 and receive the extra $50,000 as cash. You’ll need to qualify for the loan just as you did with your initial mortgage. But if interest rates have gone down since then, you could end up with a better rate than you had originally.

Other home improvement financing options

If one of these options isn’t right for you, there are lots of other ways to pay for renovations, including personal loans, credit cards and of course, cash. Just be sure to stick to your budget and not spread yourself too thin financially.

The Credit Union of Texas is proud to offer home equity loans, HELOCs, and other financing options to our members. For more information on financing options, or to get started on an application, contact us or stop in to one of our convenient locations.

Choosing a contractor

Once you have your financing in place and know how much you can spend on your home improvement project, it’s time to choose someone to do the actual work. Choosing a contractor is perhaps the most important decision you’ll make in the course of your project. A good contractor can make life incredibly easy, while a bad one can end up costing you thousands of dollars more than you expected.

Here are some tips for choosing a contractor:

  • Start by getting recommendations from friends and family who have done work on their own homes.
  • Then search online and look at reviews on social media or other review sites.
  • Once you’ve narrowed down your search a bit, start going through their portfolios to see what kind of work they’ve done in the past.
  • Start contacting contractors and ask about their capabilities and whether they typically use subcontractors to perform certain tasks.
  • Ask to visit one of their current job sites so you can see how the site is maintained.
  • Ask to speak to some of their recent customers to see how the projects went and how close their final costs were to the initial estimates.

Making a final decision on a contractor will likely come down to their bid, your budget and your timeline. But the more you can learn about a contractor up front, the more likely you are to find someone you trust and avoid scam artists.

Comparing bids

After you’ve narrowed down your potential contractors, request bids from your top three or four contenders. The bids you receive may look very different from each other depending on the contractor’s individual process and understanding of the project. This can make comparing bids much more difficult than most people realize.

The more detailed plans you can provide your contractors, the more accurate their estimates will be, and the easier it will be to compare. In general, bids should contain information regarding:

  • Project details and costs
  • Materials
  • Timeline
  • Payment schedule

Important: You may not always want to choose the cheapest bid. A bid that comes in well below the other estimates can be a red flag that the contractor is likely to cut corners or use cheap materials. This can impact the finished look of the renovation, and if you end up with a disreputable contractor, your project could take longer than expected and ultimately cost a lot more down the road.

When comparing bids, keep in mind that price is only one factor. By maintaining a holistic view of the project and your needs, you can select a bid and a contractor that work best for your unique situation.

Tip: Some contractors charge for a written quote. Design fees can be as much as $2,500, so make sure to factor these costs into your overall budget.

Understanding remodeling contracts

Once you’ve accepted a bid from your chosen contractor, you’ll need to sign a contract before work can start. Although some contractors are willing to work without a contract, you should insist on drawing one up because ultimately, it’s about protecting your interests. Here’s what to look for in a remodeling contract:

  1. Project description – This should be as detailed as possible and include what work will be done, the materials and products to be used and all associated costs.
  2. Payment schedule – Outlines when the contractor will get paid and on what terms. You want to tie payment to the completion of specific milestones.
  3. Permits and licenses – Details who will be responsible for pulling all necessary permits and licenses from the city. The contractor typically handles these matters.
  4. Lien waivers – These waivers prove payment was made to subcontractors, helping to protect you from legal issues if any party tries to claim they weren’t paid for their work.
  5. Timeline – Outlines key dates for project milestones. Although this may change slightly as the project develops, having a basic timeline can help you avoid unnecessary delays.
  6. Change orders – You should require the contractor to seek your written permission before completing any work that was not included in the original project scope.
  7. Contingencies – Make sure to include an “escape route” that allows you to walk away from the project without penalty if certain conditions aren’t satisfied.

Final tips: Avoid allowances (price estimates) by determining all your materials and products before work begins. Also avoid the contractor’s warranty, as it likely favors them, not you. Make sure you and your contractor both sign the contract to make things official.

What to do once work has started

When the walls open up, the tiles come down and the sawdust starts flying, there’s no turning back — your renovation is underway. But what do you do now that work has actually started?

Hopefully you chose a contractor you trust to complete the project per the terms of your contract. But you’ll still want to have a hand in managing things along the way. Here are some tips to help things go smoothly:

  • Maintain good communication – It’s vitally important that you maintain strong communication with your contractor throughout the project. If things get delayed or issues arise, keep your emotions in check and try to find a productive solution. Screaming never solves anything, and you’ll still need your contractor to finish the job.
  • Keep tabs on progress – Whether you’re living in your home during renovations or off-site, it’s important that you continually check on the progress to make sure things are going to plan. If you’re doing an extensive renovation, you may consider hiring an independent inspector to make sure everything is being executed properly.
  • Limit changes – Deviating from your plan is the quickest way to see your costs increase. Plan as much as possible before work begins and limit the changes you make along the way to help ensure faster, on-budget project completion.
  • Final payments – Never make a final payment until all the work has been completed to your satisfaction. Generally, this final payment will be at least 10 percent of the total agreed-upon price.

When the work is done, all that’s left to do is sit back and enjoy your newly renovated home!

Ready to Apply for Financing?

Credit Union of Texas offers competitive rates on Home Equity Loans and HELOCs. Check them out and when you're ready, give us a call or apply online! 

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