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So, you’re dreaming of a brand-new kitchen, a luxurious bathroom, or maybe an entire addition to your home. But then reality kicks in: how do you pay for it? Financing a renovation can feel overwhelming, especially when most of us don’t have a spare $50,000 lying around.

To help you out, we’ve rounded up the best financing options with insights from Liz Young, Founder and CEO of Realm, a platform that connects homeowners with expert guidance, reliable contractors, and customized renovation plans. Here are some ways to make that dream home a reality — without breaking the bank.

1. Home equity line of credit (HELOC)

If you have some solid equity built up, a home equity line of credit could be your best friend. Think of a HELOC as a credit card backed by your home’s value. You can borrow against it as needed and only pay interest on what you actually spend.

Liz Young explains, “A HELOC lets you tap into your home equity without messing with your first mortgage, which might have a much lower rate than current market averages.” With today’s average HELOC rates around 8.38%, this is a more affordable option for many homeowners.

To break it down, imagine you want a modest bathroom remodel (national average cost according to Realm: $16,593). With a 15-year HELOC rate at 8.38%, that comes to about $162 per month — roughly the price of one fancy dinner out per month. “Many homeowners find projects way more affordable when they focus on monthly payments instead of the total cost,” Young adds. For larger projects, like an addition costing $168,947, monthly payments would be around $1,652, which could still be more manageable than paying upfront.

2. Cash-out refinance

If your mortgage rate is on the higher side, a cash-out refinance might be worth considering. This involves refinancing your existing mortgage with a larger loan, giving you the difference in cash to use toward your renovation. It’s like getting a mortgage upgrade — with bonus cash.

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However, this option only makes sense if today’s mortgage rates are equal to or lower than your current rate. “You don’t want to give up a great rate just to finance a remodel,” Young says. Plus, a cash-out refinance comes with closing costs, so you’ll need to factor those in when comparing this to other options.

3. Home improvement loan

A home improvement loan can be ideal if you have less equity or aren’t looking to tap into your home’s value. Home improvement loans are typically personal loans, meaning you don’t need collateral (like your house) to qualify. They’re straightforward: you get a lump sum upfront and make fixed monthly payments over a set term.

While these loans can be convenient, they often have higher interest rates than HELOCs or cash-out refinances. Young advises, “If you’re comparing options, a personal loan should be a last resort if you have enough equity for a HELOC or cash-out refinance.” Still, it’s a great option for those who want fixed terms and predictable payments.

4. 0% APR credit card

It might sound surprising, but a 0% APR credit card can be a quick, flexible way to fund smaller renovations, like a guest bathroom facelift or a laundry room upgrade. These cards offer an introductory 0% APR period, often for anywhere from 12-21 months, which means you won’t pay any interest if you can pay it off in time.

“Using a 0% APR credit card can work well for low-cost, short-term projects,” Young notes. Just keep an eye on the calendar, as go-to interest rates will kick in after the intro period. If you can pay off the charges within that time, this option is like free loan money.

5. Renovation-specific financing programs

Finally, renovation-specific financing programs can be a solid choice, especially if you’re dealing with energy-efficient upgrades. Certain lenders and even government programs offer loans specifically for energy-saving projects, like solar panel installations or high-efficiency heating and cooling systems.

“Homeowners often overlook programs like these,” says Young, “but they’re excellent if you’re planning a renovation with a green angle.” Look into local programs or even check with your utility company to see if it offers special financing for energy-efficient upgrades.

Common renovation financing mistakes (and how to dodge them)

A renovation can add value to your home, but it can also add unnecessary stress. Here are some common traps to avoid, straight from Young’s renovation playbook.

Assuming every renovation adds value

Some projects, like kitchens and bathrooms, tend to increase home value, but others might not. Be strategic and research which upgrades offer the best return on investment.

Ignoring monthly payment costs

Sticker shock from a six-figure estimate can scare anyone. But focusing on the monthly payment instead of the total cost can make renovations seem much more affordable. “A $58,000 kitchen remodel might sound huge, but with a 15-year HELOC, the monthly payment is around $568 — a lot closer to a car payment than a huge, upfront expense,” explains Young.

Not setting a realistic budget

It’s easy to overshoot on a renovation. Young emphasizes, “Start with a clear budget, and don’t get wooed by options outside your price range.” Getting quotes and factoring in unexpected costs (they will happen!) will help you avoid budget blowouts.

In the end, financing your home renovation is all about picking the right option for your situation, understanding the long-term impact, and dodging common pitfalls. So go ahead, plan that new kitchen or add a dreamy bathroom, and make sure your financing choice keeps the project stress free (and your budget intact).

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