How to Pay for Your Home Improvement Project

November 4, 2020

You’ve got the need or desire, you’re ready to start planning your home improvement project- but how will you pay for it?  Is it in your best interest to pay cash or finance? And how can you find the right lending program for your needs?

Let’s take a look at some of the most popular payment options to help you determine the best way to pay for your home improvement project. 

Paying Cash

Should you spend your savings on this project or finance all or part of it? To answer this question, consider the scope of your project and the health of your bank/savings account. If you plan to make simple and relatively inexpensive upgrades, like replacing the water heater or insulating the attic, you may be better off paying cash to avoid interest payments.

Phasing may also allow you to work with available cash. If you have several upgrades in mind, you can decide when to do each one based on how much money you have on hand. You may want to bring an architect and general contractor to help you determine how to break the project into phases, how to best sequence those phases, and what each phase will cost.

There can be a disadvantage to paying cash. Let’s say you’re considering cashing in a mutual fund to pay for the upgrade or repair. The problem is that you’d be taking a liquid asset (money that’s available when you want it) and investing it into a fixed asset (money that is not readily available). You might lose earnings from that liquid asset (interest, dividends, capital gains, etc.). Also think about whether you’ll have adequate cash reserves to cover unexpected expenses.


The advantage of financing your project is that you keep your cash on hand and instead use someone else’s money to improve or repair your home. When evaluating your options make sure you look carefully at those great-sounding deals with low-to-zero interest rates and short terms. Make sure you can afford the monthly payments before you leap.

If you are absolutely sure you can pay off the loan within the specified time frame, a short-term low-to-zero interest rate loan can be a good deal. However, many people fall into the trap of not paying off the loan by the end of the term and then find themselves paying interest at 18% or higher and accrued deferred interest charges. Consider what you are stepping into before you choose this option.  Below are the most common financing options:

Cash-Out Refinance 

A cash-out refinance requires you to refinance your first mortgage in order to get extra cash from your home’s equity. In order to evaluate whether or not a cash-out refinance is worthwhile for you, work with a mortgage professional to get an estimate of the financing costs and the interest charges over the life of the loan. A cash-out refinance may be a good option if the interest rate is lower than the current interest rate on your existing mortgage. Consider the amount of years you have left on your mortgage and try to refinance your mortgage for a similar term to maximize your benefits.

Secured and Unsecured Loans 

A secured loan is recorded as a lien against your property. An unsecured loan - sometimes referred to as signature loan or personal loan - is not secured by any property or other assets. Both options are contingent on the borrower’s credit worthiness and meeting other underwriting requirements. However, unsecured loans generally require a higher credit score (680 and above), than secured loans do, to be approved.

Typically, unsecured loan amounts range from $1,000 to $100,000, while loan terms range from 1 to 7 years. The most popular secured loans include home equity loans and home equity lines of credit. In both cases, the borrower must make payments, but a secured loan must be paid in full when the property is sold.

Energy-Efficient Mortgages ("EEMs")

The Energy-Efficient Mortgage ("EEM") is a loan program insured by the Federal Housing Administration ("FHA") that you can use to refinance a house and make specific energy improvements, adding the cost of those improvements to your mortgage. Participation requires a home performance assessment by a Home Energy Rating System ("HERS") professional.

An EEM pays only the home performance assessment and energy improvements. The amount of the loan is limited to 5-percent of the property’s appraised value (not to exceed $8,000) or $4,000, whichever is greater based on the value of your property.

You can take out an EEM loan as a 15- or 30-year term and almost anyone who has satisfactory credit, and sufficient steady income to make monthly mortgage payments can be approved for a FHA-insured EEM loan.

Examples of improvements that are made under an EEM loan:

  • Replacing a furnace/cooling system
  • Fixing or replacing a chimney
  • Insulating an attic, crawl space, and/or pipes and air ducts
  • Replacing doors or windows
  • Installing active and passive solar technologies


Property Assessed Clean Energy Program ("PACE")

The Property Assessed Clean Energy (“PACE”) program is collateral-based financing that enables homeowners to use a portion of their home equity to cover the cost of home upgrades related to energy-efficiency, renewable energy, water conservation, and safety and resiliency. 

Although PACE financing does not look at the homeowner’s credit score to determine eligibility it does take into consideration factors such as mortgage and property tax payment history, income, etc. Additionally, the property must be located in a participating PACE community.

Click HERE to find out in seconds if your property is located in a PACE participating community.

PACE financing offers competitive fixed interest rates, loan amounts of up to $250,000, and terms of up to 30-years depending on the product’s expected useful life. PACE financing is paid through the property’s tax bill annually or biannually depending on the county’s tax billing frequency. Additionally, PACE financing comes with a robust set of consumer protections and safeguards.   

PACE financing is available for a large array of products and projects including:

  • Heating, Ventilation, and Air Conditioner (HVAC)
  • Windows and Doors
  • Roofing
  • Solar Panels
  • Earthquake Retrofit
  • Hurricane Protection
  • Landscaping and Turf
  • And much more

After considering all of your options, review your savings and cash flow to determine whether you can afford to pay for the improvements out of pocket – partially or in full, or if not, what monthly loan payments you can comfortably afford. If financing is needed, apply for the option that best suits your needs and project timing.

Applying for PACE financing takes less than 5 minutes and you could be approved same day.

Click HERE or call us at 844-736-3934 to get started!



Important Disclosures

PACE financing is subject to credit approval. Underwriting requirements and restrictions apply. PACE financing is secured by a lien on the subject property and may be required to be repaid upon refinance or sale. Homeowners should perform due diligence before selecting a home improvement contractor. PACE financing is private financing that must be repaid in full. PACE financing is not a government subsidy. Homeowners are encouraged to use PACE financing responsibly. Names or trademarks used above are the property of their responsive owners.