Paying for Your Remodel: How to Finance a Home Remodeling Project in Ann Arbor


If you’re considering a home renovation, then you probably have a good handle on why you want to remodel. Maybe you need more space for a growing family, want to modernize your space, increase your home’s value, or all the above and more!

That’s the easy part.

What many homeowners find more difficult is figuring out how to finance the project. Because, while remodeling your home is a very worthy investment, you don’t want it to completely break the bank. Thankfully, you have a lot of options.


How much does a home remodeling project cost?


Before you can look at financing options, you need to understand how much your home remodeling project will cost.

Most experts suggest setting a budget equal to 10% or more of your overall home’s value to make a difference in the home. This will help you realize a return on your investment down the road if you ever decide to sell.

Whatever your budget, it should be set carefully and strategically based on your needs. It’s okay to have a price range in mind, but working with a reputable design-build firm will help you nail down the specifics.

For example, here at Forward Design Build Remodel, we’ll pull from our 20+ years of experience to determine the right budget, taking into consideration...

  • Your home’s value

  • Your personal style (including material choices and scope of the project)

  • Your lifestyle needs

  • Your target budget

All these factors will help us come up with a budget that you feel comfortable with and will give you the desired end result.


How to pay for a home remodel


Now comes the fun part: determining how you will finance and pay for your remodeling project.

People today finance home-remodeling projects in many ways — from personal savings to bank loans. In the past, obtaining money for a home remodeling project was tricky, but today there are many options available.

Understanding the various choices will help you make the best decision for both your wallet and your house.


1. Cash

Cash is obviously the simplest, most effective way to pay for your remodeling project, since you won’t be beholden to a lender. Even if you don’t have the full amount in cash, consider paying for a portion of the cost out-of-pocket, if possible.


  • No interest or fees

  • Not dependent on anyone

  • Fast (no need to wait for the funds)


  • Limited flexibility in other expenses

  • Not the most attainable option for the majority of homeowners.


2. Short-term loans

Banks and credit unions offer personal loans that can be used for renovation projects. These loans are typically meant to be repaid with interest over 24 to 60 months. Interest rates depended on the amount you borrow, your credit, and the loan term


  • Money available fairly quickly

  • Interest rate is typically better than a credit card


  • May be difficult to get approved

  • Potentially high interest rates and fees


3. Cash-out refinance


Those who have enough equity in their home often consider a cash-out refinance. This involves refinancing your existing home loan for an amount that’s higher than what you owe. With this, you would pay off your original mortgage and have some cash left over.

Try this refinance calculator to see if refinancing makes sense for you.


  • One lump sum, no ongoing (potentially complicated) withdrawals

  • Can lower your interest rate

  • The interest you pay may be tax deductible


  • Closing costs are often involved (which can be a few thousand dollars)

  • Not a good option for homeowners without a mortgage


4. Home equity loan

This is the classic method for financing home renovations. This type of loan allows you to keep your original mortgage (which may be beneficial if it has a low interest rate) and is taken against the equity in your home.


  • Allows you to borrow a fixed amount as a lump sum, no complicated draw schedule

  • A great option for most expensive home remodeling projects


  • Since large amounts of money may be borrowed with this type of loan, it may encourage spending on things not directly related to the renovation

  • Your home is the collateral for the loan, so inability to repay the loan can result in a foreclosure


5. Home Equity Line of Credit (HELOC)

A HELOC is similar to a home equity loan. The big difference is instead of receiving a fixed amount in one lump sum, this method allows you to borrow only what you need. During the draw period, you will make interest-only payments.


  • Only borrow the exact amount you need

  • You will only owe interest on the amount you’ve borrowed to date


  • Once the draw period is over, your monthly payments can skyrocket, since you’ll be repaying both principal and interest

  • Your home is the collateral for the loan, so inability to repay the loan can result in a foreclosure


6. Reverse mortgage


This loan is similar to a HELOC, but is meant for those that are age 62 or older and have equity in their home. This type of agreement requires that you relinquish equity in your home in exchange for regular payments.


  • Does not require that you make payments during your lifetime

  • A simple way to access the equity in your home


  • You must continue to use the property as your primary residence for the life of the loan

  • Diminishes the value of your estate

  • Fees may be higher than with a tradition mortgage


When it comes to any loan, rule # 1 is to always comparison shop!

This article is meant to provide you with an introduction into the many options available for financing your home remodeling project. However, as with any big financial decision, it’s important to do your research.

It’s a good idea to explore a few of these options listed above and talk to your financial counselor or bank to ensure you’re making the best decision for you and your family.


How can we help?


At Forward Design Build Remodel, we understand that finances are an important part of planning your home remodel, and we’re here to make that easier.

We offer free initial consultations to meet with you in your home and get to know your vision. Our goal is to understand your budget and the scope of your project. We’ll evaluate your needs and provide you with an initial budget range within the first couple of meetings.

Our fixed-contract approach allows you to feel confident about the final total cost of the remodel and thus determine the best financing method to fit your needs.

Do you have questions? Learn more about our process!