Should You Refinance to Pay for Home Improvements?

Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as "Credible."

One popular way to pay for home improvement projects is to utilize your home equity through a cash-out refinance. With a cash-out refinance, you take out more than your current mortgage balance and receive the difference in cash.

First, you’ll pay off your existing mortgage, and then you can use the excess funds to make repairs or upgrades that increase your home’s value.

Here’s what you should know about refinancing to pay for home improvements:

• How refinancing your mortgage can pay for your home improvement
• Funding major home renovations with a cash-out refinance
• How to qualify for a cash-out refinance
• Pros and cons of refinancing for home improvements
• Other ways to pay for your home improvements

How refinancing your mortgage can pay for your home improvement

A cash-out refinance can pay for home improvements by giving you a lump sum payment, which you can put toward a big project.

Here are a few examples of small fixes that you could make with a little extra money in your pocket every month:

• Hire painters to spruce up your home’s interior
• Get new appliances
• Add energy-efficient window coverings
• Refinish wood floors
• Install ceiling fans to lower energy costs
• Refresh landscaping to add curb appeal

For bigger projects, you might want to also consider a home equity loan or personal loan.

Learn More:

• 10 Home Renovations That Bring the Most Joy
• 8 Popular Pandemic Home Renovations to Transform Your Space

Funding major home renovations with a cash-out refinance

When you do a cash-out refinance, you get a new, larger mortgage that pays off your original mortgage, and you can use the remaining funds for your home improvement project.

It might be smart to borrow more than $25,000 to cover the closing costs on your new loan and possible cost overruns on the kitchen remodel as well. When your new loan closes, the lender will send $200,000 to your current lender to pay off your mortgage and give you the remaining loan amount to use for your kitchen remodel.

Learn More: How Much It Costs to Renovate a House

How to qualify for a cash-out refinance

To get approved for a cash-out refinance, you’ll need to meet these qualifications:

• Have more than 15% to 20% equity in your home. Lenders typically require you to have 80% to 85% equity left after you take cash out.
• Maintain a back-end debt-to-income ratio of less than 43%. Your other monthly debt payments plus your new mortgage payment should add up to no more than 43% of your gross monthly income.
• Keep your credit score above 620. Pay your debts on time and don’t carry a credit card balance of more than 30% of your credit limit — but 6% or less is even better.

Find Out: Capital Improvements: Your Guide to Tax-Deductible Renovations

Pros and cons of refinancing for home improvements

Before refinancing your loan for home improvements, make sure you consider the pros and cons.

Pros

• Take advantage of low interest rates. You might be able to refinance your mortgage at a lower rate, which can lead to lower monthly payments. You could then use these savings to pay down other debt.
• Improve your property value without paying out of pocket. It’s important to always have at least several months’ worth of living expenses in a cash emergency fund. By opting for a cash-out refinance, you can get money for home improvement projects without having to dip into any cash funds.
• Use leftover cash for whatever you like. There are no restrictions on how you use the proceeds from a cash-out refinance. You can only claim a mortgage interest tax deduction for the part you put toward home improvements, however.
• Get rid of private mortgage insurance (PMI). Refinancing your mortgage may lower your loan-to-value (LTV) ratio and allow you to eliminate PMI. If your home is worth enough to bring your LTV to 80%, you can apply to have your PMI canceled.

Cons

• You’ll have to pay closing costs. Closing costs generally amount to 2% to 5% of the loan amount, averaging out to $5,000. Even though the interest rate might be incredibly low, paying $5,000 in fees for a home improvement loan might not make sense unless you’re getting other benefits from refinancing, too.
• Your home is collateral, putting you at risk of foreclosure. The reason a mortgage is one of the cheapest ways to borrow money is that your home secures the loan. If you overextend yourself with a cash-out refi and can’t keep up with the new payments, you risk losing your home.
• You might spend several days — even weeks — waiting for the loan to close. In August 2020, the average refinance took 50 days to close. Some lenders are faster than others, though, and you can help move the process along by responding to all their requests rapidly.
• The improvements you make might not improve your home’s value. They might improve how much you enjoy living in your home, but not every renovation will provide a return on your investment.

Find out: 18 Home Improvement Projects You Can Wrap Up in a Day

Other ways to pay for your home improvements

Other sources of home improvement funding might appeal to you more because they might be faster, easier, or cheaper to obtain.

Personal loan

A personal loan lets you borrow a lump sum at a fixed interest rate and repay it over a set number of years. It can be a good choice when you don’t want to use your home as collateral for the loan or when you want to get the money quickly.

If you decide to take out a personal loan, be sure to shop around and consider as many lenders as possible to find the right loan for you. Credible makes this easy — you can compare prequalified rates from all of our partner lenders in the table below in just a few minutes.

Lender	Fixed rates	Loan amounts
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	7.99% - 35.99% APR	$7,500 to $50,000
Fixed APR: 7.99% - 35.99% APR Min. credit score: Does not disclose Loan amount: $7,500 to $50,000 Loan terms (years): 2, 3, 4, 5 Time to fund: If approved, funds sent within 24-72 hours† Fees: Origination fee Discounts: No Eligibility: Available in all states except CO, CT, HI, KS, ND, NV, VT, WV, WI, and WY Customer service: Phone Soft credit check: Yes Min. Income: None Loan Uses: Debt consolidation, home improvement, wedding, travel, medical expenses, and other purposes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	9.95% - 35.99% APR	$2,000 to $35,000**
Fixed APR: 9.95% - 35.99% APR Variable APR: N/A Min. credit score: 550 Loan amount: $2,000 to $35,000** Loan terms (years): 2, 3, 4, 5* Time to fund: As soon as the next business day (if approved by 4:30 p.m. CT on a weekday) Fees: Origination fee Discounts: Autopay Eligibility: Available in all states except HI, VT, MA, ME, NY, WV Customer service: Phone, email Soft credit check: Yes Loan servicer: Avant Loan Uses: Debt consolidation, emergency expense, life event, home improvement, and other purposes Min. Income: $1,200 monthly
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	7.99% - 15.19% APR	$10,000 to $50,000
Fixed APR: 7.99% - 15.19% APR Variable APR: N/A Min. credit score: 740 Loan amount: $5,000 to $50,000 Loan terms (years): 3 to 6 Time to fund: Next business day Fees: No prepayment penalty Discounts: None Eligibility: Available in all 50 states Customer service: Phone Soft credit check: Yes Min. Income: Does not disclose Loan Uses: Debt consolidation, home improvement, self-employment, and other purposes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	8.99% - 35.99% APR	$2,000 to $50,000
Fixed APR: 8.99% - 35.99% APR Variable APR: N/A Min. credit score: 600 Loan amount: $2,000 to $50,000 Loan terms (years): 2, 3, 4, 5 Time to fund: As soon as 1 to 3 business days after successful verification Fees: Origination fee Discounts: None Eligibility: Available in all states except DC, IA, VT, and WV Customer service: Phone Soft credit check: Yes Loan servicer: Best Egg and Blue Ridge Bank Min. Income: None Loan Uses: Credit card refinancing, debt consolidation, home improvement, and other purposes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	6.99% - 24.99% APR	$2,500 to $35,000
Fixed APR: 6.99% - 24.99% APR Min. credit score: 660 Loan amount: $2,500 to $40,000 Loan terms (years): 3, 4, 5, 6, 7 Time to fund: As soon as the next business day after acceptance Fees: Late fee Discounts: None Eligibility:  Available in all 50 states Customer service: Phone Soft credit check: Yes Loan Uses: Auto repair, credit card refinancing, debt consolidation, home remodel or repair, major purchase, medical expenses, taxes, vacation, and wedding
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	10.5% - 29.99% APR	$5,000 to $40,000
Fixed APR: 10.5% - 29.99% APR Min. credit score: 640 Loan amount: $3,000 to $40,000 Loan terms (years): 2, 3, 4, 5 Time to fund: As soon as 2 to 5 business days after verification Fees: Origination fee Discounts: None Eligibility: Available in all states except MA and NV Customer service: Phone, email, chat Soft credit check: Yes Min. Income: $25,000 Loan Uses: Debt consolidation and credit card consolidation
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	8.3% - 35.89% APR	$1,000 to $40,000
Fixed APR: 8.3% - 35.89% APR Min. credit score: 600 Loan amount: $1,000 to $40,000 Loan terms (years): 3, 5 Time to fund: Usually takes about 2 days† Fees: Origination fee Discounts: None Eligibility: Available in all 50 states Customer service: Phone, email Soft credit check: Yes Loan servicer: LendingClub Bank Min. Income: None Loan Uses: Debt consolidation, paying off credit cards, home improvement, pool loans, vacations, and other purposes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	7.99% - 35.99% APR	$2,000 to $36,500
Fixed APR: 7.99% - 35.99% APR Min. credit score: 600 Loan amount: $2,000 to $36,500 Loan terms (years): 2, 3, 4, 5, 6 Time to fund: As soon as the next business day Fees: Origination fee Discounts: Autopay Customer service: Phone, email Soft credit check: Yes Min. Income: $20,000 Loan Uses: Home improvement, consolidate debt, credit card refinancing, relocate, make a large purchase, and other purposes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	5.99% - 23.99% APR	$5,000 to $100,000
Fixed APR: 5.99% - 23.99% APR Min. credit score: 700 Loan amount: $5,000 to $100,000 Loan terms (years): 2, 3, 4, 5, 6, 7* Time to fund: As soon as the same business day Fees: None Discounts: Autopay Eligibility: Available in all states except VT Customer service: Phone, email Soft credit check: No Loan servicer: LightStream Min. Income: Does not disclose Loan Uses: Credit card refinancing, debt consolidation, home improvement, and other purposes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	18.0% - 35.99% APR	$1,500 to $20,000
Fixed APR: 18.0% - 35.99% APR Min. credit score: None Loan amount: $1,500 to $20,000 Loan terms (years): 2, 3, 4, 5 Time to fund: As soon as 1 to 2 business days after approval Fees: Origination fee Discounts: None Eligibility: Must have photo I.D. issued by U.S. federal, state or local government Customer service: Phone, email Soft credit check: Yes Min. Income: Does not disclose
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	7.74% - 17.99% APR	$600 to $50,000 (depending on loan term)
Fixed APR: 7.74% - 17.99% APR Min. credit score: 700 Loan amount: $600 to $50,000* Loan terms (years): 1, 2, 3, 4, 5 Time to fund: 2 to 4 business days after verification Fees: None Discounts: None Eligibility: Does not disclose Customer service: Phone, email Soft credit check: No Min. Income: Does not disclose Loan Uses: Debt consolidation, home improvement, transportation, medical, dental, life events
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	5.99% - 35.99% APR	$3,500 to $40,000
Fixed APR: 5.99% - 35.99% APR Min. credit score: 640 Loan amount: $3,500 to $40,000 Loan terms (years): 2, 3, 4, 5 Time to fund: 90% funded within a day13 Fees: Origination Fee, $15 Late Fee, $25 NSF Fee Discounts: None Eligibility: Available in all states except CO, CT, ME, NV, NH, TN, VT, WV, WY, and all U.S. Territories Customer service: Phone, email Soft credit check: Yes Loan servicer: Reach Financial Min. Income: $1,000 monthly Loan Uses: Debt consolidation, credit card refinancing
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	8.99% - 23.43% APR10	$5,000 to $100,000
Fixed APR: 8.99% - 23.43% APR10 Min. credit score: Does not disclose Loan amount: $5,000 to $100,000 Loan terms (years): 2, 3, 4, 5, 6, 7 Time to fund: 3 business days Fees: None Discounts: Autopay Eligibility: Available in all states except MS Customer service: Phone, email Soft credit check: Yes Min. Income: Does not disclose Loan Uses: Solely for personal, family, or household uses
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	11.69% - 35.93% APR7	$1,000 to $20,000
Fixed APR: 11.69% - 35.93% APR7 Min. credit score: 560 Loan amount: $1,000 to $50,000 Loan terms: 3, 5, or 7 years 8 Time to fund: Within one day, once approved9 Loan types: Debt consolidation, pay off credit cards, home improvements, unexpected expenses, home and auto repairs, weddings, and other major purchases Fees: Origination fee Discounts: Autopay Eligibility: A U.S. citizen or permanent resident; not available in DC, IA Customer service: Phone, email Soft credit check: Yes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	8.49% - 35.97% APR	$1,000 to $50,000
Fixed APR: 8.49% - 35.97% APR Min. credit score: 600 Loan amount: $1,000 to $50,000* Loan terms (years): 2 to 7 Time to fund: Within a day of clearing necessary verifications Fees: Origination fee Discounts: Autopay Eligibility: Available in all states except Washington, DC Customer service: Email Soft credit check: Yes Min. Income: Does not disclose Loan Uses: Debt consolidation, credit card refinancing, home improvement, and other purposes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	5.4% - 35.99% APR4	$1,000 to $50,0005
Fixed APR: 5.4% - 35.99% APR4 Min. credit score: 580 Loan amount: $1,000 to $50,0005 Loan terms (years): 3, 5, or 7 years4 Time to fund: As soon as 1 - 3 business days6 Fees: Origination fee Discounts: None Eligibility: Available in all 50 states Customer service: Phone, email Soft credit check: Yes Min. Income: $12,000 Loan Uses: Payoff credit cards, consolidate debt, take a course or bootcamp, relocate, make a large purchase, and other purposes
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All APRs reflect autopay and loyalty discounts where available | LightStream disclosure | 10SoFi Disclosures | Read more about Rates and Terms

Home equity loan

A home equity loan might be right for you if you want to borrow a lump sum but won’t benefit from refinancing. Because it’s a second mortgage, the interest rate will be higher than what you’d pay on your existing mortgage, but you’ll also be borrowing a smaller amount. The smaller loan will keep your closing costs and total interest charges down.

HELOC

A home equity line of credit can be a good choice if you’re doing a series of smaller home improvement projects that you don’t need to pay for all at once. It’s also a second mortgage, so your home will serve as collateral. It will have a variable interest rate, so you’ll need to plan for fluctuations in monthly payments.

Credit card

Your favorite home improvement store might offer a credit card with 0% financing for six to 24 months, depending on how much you spend or what type of project you’re doing. Getting approved for a new credit card is faster and easier than getting approved for a mortgage and comes with no closing costs.

If you can pay off all your charges during the 0% introductory period, a home improvement credit card — or any 0% APR credit card — might end up being the easiest and cheapest way to pay for home improvements. However, if you don’t fully repay what you charged during the promotional period, the interest can be higher than a mortgage or personal loan.

Keep Reading: Personal Loan vs. Credit Card

Which type of loan is best to pay for home improvements?

Certain loan types are more fitting for certain situations. Here are the loan types you should consider, depending on your financial situation:

Credible is a good choice for comparing several of these options, including cash-out refinances, personal loans, and credit cards.

If you’re considering a cash-out refinance, be sure to consider as many lenders as possible. Credible makes finding the best deal easy — you can compare multiple lenders and see prequalified rates in as little as three minutes.

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About the author

Amy Fontinelle

Amy Fontinelle has been a personal finance writer since 2006. Her work has been published by Forbes Advisor, Capital One, MassMutual, Prudential, Reader’s Digest, The Motley Fool, Investopedia, International Business Times, Business Insider, Bankrate, and other outlets.

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