17% of Homeowners Are Spending More on Renovations This Year. Here Are 3 Options for Financing Them

If you don't have the money in savings to renovate, here are some choices to explore.

If you've been eager to renovate your home for quite some time, then you may be ready to take the plunge -- even if it means paying more than usual due to inflation. In a recent survey by Today's Homeowner, 17% of homeowners are spending more on improvements this year. And many plan to dip into their savings accounts to cover their costs. If that's not an option for you, then here are a few borrowing choices to consider.

1. A personal loan

A personal loan lets you borrow money for any purpose. If you have a home improvement project on your radar, it's an option worth looking at if your credit score is in great shape. But if your credit isn't so stellar, then you may want to go another route.

Personal loans are unsecured, which means they aren't tied to a specific asset. And when you don't have such great credit, it can seem like a lender is taking on a bigger risk by writing that loan. That means you could get stuck with a higher borrowing rate that makes your loan less affordable.

2. A home equity loan

Home equity is measured by taking the amount of money you owe on your mortgage loan and subtracting it from your home's value. If your home is worth $300,000 and you owe $200,000 on your mortgage, that leaves you with $100,000 in home equity.

One of the great things about having home equity is that you can borrow against it. And one route to take in that regard is to sign a home equity loan. This works very much like a personal loan in that you borrow a fixed amount at a preset interest rate, and you pay your loan back in installments over time. The main difference, though, is that your home is used as collateral for your loan. This means that you may have an easier time qualifying for a home equity loan than a personal loan if your credit score isn't in such great shape.

Of course, the danger in taking out a home equity loan is that if you fall behind on your payments, you could eventually risk losing your home. But if you take out a loan whose payments you can afford, you'll minimize that risk a lot.

3. A home equity line of credit

Like a home equity loan, a home equity line of credit, or HELOC, lets you borrow against your home's equity. Only instead of borrowing a fixed amount, you get access to a line of credit you can take withdrawals from over a period of time -- for example, five or 10 years.

The upside of a HELOC is that you get flexibility. If you're not sure how much your renovations will cost, you can take out a larger line of credit and only withdraw the amount you need. The downside, though, is that HELOC interest rates tend to be variable, so your monthly payments could rise over time if your interest rate increases. And, like a home equity loan, if you fall behind on your payments, you put your home itself at risk.

Many people can't afford to pay for home renovations outright. If that's the case for you, these options are all worth considering.