discussing finance options for home renovation

5 Ways to Finance a Home Renovation in Rhode Island

5 Ways to Finance a Home Renovation in Rhode Island

Are you living in Rhode Island and wondering how to finance a home renovation? You’re not alone! Many homeowners in Rhode Island are opting to make the most of their time and resources by upgrading their homes to add value while waiting for high mortgage rates to drop. Plus, as home values steadily increase in the Ocean State, especially in the Providence Metro area, homeowners are finding the home renovation path to be a more appealing approach over purchasing a new house. But if you don’t have cash to fund the renovation, you’ll have to find other ways to finance the project and get access to your home equity (equity being the difference between your home value and the amount you owe on your mortgage). 

So what are your options? Finding the right financing option can make all the difference in your renovation journey. In this week’s article, we’ll take a closer look at five ways to finance a home renovation and highlight the options that past Red House clients have found successful. Note that when taking out a loan, it’s essential to speak with an expert first to make sure you have the means to make future payments and maintain a comfortable standard of living. We’d also recommend speaking with a financial advisor to help chart your long-term financial commitments, as large-scale home remodeling projects could affect property taxes, home insurance premiums, and even utility bills. 


Home Equity Loans 

The home equity loan is first on our list of popular financing options for home renovations. Also referred to as a second mortgage, some of the benefits of a home equity loan include fixed monthly payments, a repayment period of between 5-30 years, and interest payments may be tax deductible. 

If you’ve built up equity in your home, borrowing against that equity could allow you to access a substantial sum with interest rates that are a much better option than those of a credit card (which, unless you have the means, we don’t recommend using a credit card for home renovation payments). There are numerous banks and credit unions in Rhode Island that offer competitive home equity loan options, and it’s essential to shop around for options that meet each borrower’s needs and criteria. When a potential client comes to Red House with plans to take out a loan, we often refer them to Debra Beauchamp, Mortgage Originator and Assistant VP of Business Development at Navigant Credit Union. Deb has over 30 years of industry experience and is a great person to talk to when seeking more information on financing your home renovation project.


Home Equity Lines of Credit (HELOC)

Home Equity Lines of Credit, or HELOCs (pronounced “he-lock”), are a popular option amongst Red House clients needing to finance their home renovation projects. Like home equity loans, HELOCs leverage your home’s equity as collateral, and you’ll want significant home equity accrued. The difference is that borrowers gain access to a revolving line of credit instead of receiving a lump sum, as in a home equity loan. This lets homeowners borrow what they need when they need it, making it a beneficial option when working with a design-build firm like Red House. As a project’s scope evolves, the flexibility of a HELOC allows funds to be withdrawn as needed, making it an ideal choice for more extensive, multi-phased renovation projects. This flexibility also helps cover the cost of any unforeseen expenses. 

Another benefit of a HELOC is the relatively low initial payments, which are typically interest-only. And, if you have the means, paying back the principal loan during the draw period will allow you to borrow more, too. Just be mindful that payments will eventually go up, and sometimes, floating interest rates can further affect this. Ensure you understand your loan agreement’s terms, and don’t be lulled into borrowing more than you need. 

Additionally, approval for a HELOC can take up to six weeks, so if you’re making moves to renovate or remodel your home, you’ll want to speak with your mortgage lender early on to get the ball rolling. Many lenders will need to understand the scope of your project and budget minimum, which Red House is happy to discuss with you. In fact, your project’s scope and budget range are the main subjects of the Discovery Call, the first step in your renovation journey with Red House. 

Once you have a ballpark idea of how much your home renovation will cost, it’s best to speak with your lender immediately and before your initial home walkthrough. At Red House, having this information ready for your Project Developers will help them deliver the exceptional project management Red House is known for and avoid potentially costly delays down the line. Delays in the financing process can push back your project’s timeline or cause another homeowner’s renovation project to jump your spot in the project queue. 


Cash-Out Refinancing

In a cash-out refinance, you replace your existing mortgage with a new one, borrowing more than you owe and pocketing the difference in cash. That lump of money can be used for anything, even beyond the costs of your home renovation project, allowing for greater flexibility.

This is an attractive option if your current mortgage rate is higher than market averages, where refinancing your home could lead to a lower interest rate. However, with relatively high current mortgage rates, many homeowners are staying away from this option because it would be more expensive in the long run. 


Personal and Family Loans

Personal loans offer a flexible solution for financing smaller home renovation projects. Many financial institutions in Rhode Island (Navigant Credit Union being one) can provide tailored personal loan options for home improvements, allowing homeowners to borrow without leveraging their homes as collateral. While personal loans offer quick access to funds and simplified application processes, interest rates may be higher than secured loans. Other drawbacks of personal loans include shorter payback periods (usually 1-5 years), fees and closing costs, and borrowers may be required to have built strong credit. 

Family loans could also be an option if a family member has the means to help finance your home renovation. Depending on your agreement terms set with your lender, interest rates could be very favorable (or even set to zero), repayment periods flexible, and can avoid application fees and closing costs. While family loans don’t require collateral (but can), family relationships are at risk, and terms of the loan need to be firmly established and agreed upon before moving forward. 


FHA-Backed Loans

Homeowners may also qualify for various government programs to help finance a home renovation in Rhode Island. Programs like the Rhode Island Housing’s Home Improvement Program and federal initiatives like Title I and FHA 203(k) loans can provide financial assistance and incentives for qualifying renovations. These programs are great options for first-time home buyers and homeowners with a smaller renovation budget. Little equity is needed to qualify for these programs, and loan terms can range from six months to twenty years. Additionally, exploring energy efficiency grants and rebates can offset renovation costs while promoting sustainability. 

However, the maximum amount one can borrow with these loans will likely be lower than non-government-backed options. These types of loans often have strict deadlines and requirements, and for homeowners looking to work with a full-service design-build firm, there are better options than FHA loans. FHA-backed loans are much more stringent and offer the least flexibility in how the borrowed money can be used. So, if you’re looking to finance a home renovation in Rhode Island and your project design includes, say, installing a new luxury bathroom or in-ground pool, you likely won’t qualify for an FHA-backed loan.  

Financing A Home Renovation: Next Steps

As with any stage in home remodeling, planning to finance a home renovation requires a lot of consideration and care. 2024 will be an excellent year for renovating your home and adding value to it, and Rhode Island homeowners have many financing options to explore. If unable to pay in cash, HELOCs are popular options among Red House clients because of their flexibility, lower interest rates than credit cards, and work within our project timelines.

If you’d like to learn more about how to finance a home renovation in Rhode Island, our team of experts would be happy to connect you with the right people who’d be glad to help explore the best avenues for you. Give us a call today, and let’s get to work on your dream home!


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