How to Finance a Home Remodel: 7 Smart Options for 2026

Why Financing Makes Sense for Remodeling Projects

A home remodel is one of the largest investments you will make outside of buying the home itself. The average bathroom remodel in Sacramento costs $15,000 to $45,000, and a full kitchen renovation can run $30,000 to $80,000 or more. Paying entirely out of pocket means depleting savings that serve as your financial safety net. For most homeowners, smart financing is the practical path forward.

Financing your remodel offers several strategic advantages that go beyond simply spreading out payments:

• • Preserve Your Emergency Fund: Financial advisors recommend keeping 3-6 months of living expenses in reserve. Financing lets you remodel without draining that cushion
• • Act on Favorable Timing: Material costs and labor rates fluctuate. Financing lets you lock in current pricing rather than waiting years to save enough
• • Potential Tax Benefits: Interest on home equity loans and HELOCs used for home improvements may be tax-deductible, effectively reducing your borrowing cost
• • Immediate Value Creation: A quality remodel increases your home's value right away. In Sacramento's strong housing market, that added equity can offset or even exceed the cost of borrowing
• • Better Project Outcomes: Adequate funding prevents the temptation to cut corners on materials or skip important steps, resulting in a remodel that lasts decades

The key is choosing the right financing vehicle for your situation. Each option below has distinct advantages, drawbacks, and ideal use cases. We will walk through all seven so you can make an informed decision before starting your project.

Quality remodeling is an investment in your home's value and your daily comfort

Option 1: Home Equity Loan

A home equity loan lets you borrow a lump sum against the equity you have built in your home. You receive the full amount upfront and repay it with fixed monthly payments over a set term, typically 5 to 30 years. This is often called a "second mortgage" because your home serves as collateral.

In the Sacramento region, where median home values hover around $550,000 and many homeowners have seen substantial equity gains over the past decade, home equity loans are one of the most popular ways to finance a remodel. If you purchased your home for $400,000 and it is now worth $575,000 with a remaining mortgage of $300,000, you have approximately $275,000 in equity. Most lenders allow you to borrow up to 80-85% of your equity, giving you access to $160,000 or more.

Pros: Fixed interest rate means predictable monthly payments. Lower rates than personal loans or credit cards. Interest may be tax-deductible when used for home improvements. Long repayment terms keep monthly payments manageable.

Cons: Your home is collateral, so defaulting risks foreclosure. Closing costs add to total expense. Approval requires a home appraisal and takes longer than unsecured options. Not ideal if you plan to sell soon, as you will carry two mortgage payments.

Option 2: Home Equity Line of Credit (HELOC)

A HELOC functions like a credit card secured by your home equity. Instead of receiving a lump sum, you get access to a revolving credit line that you can draw from as needed during a "draw period" (typically 5-10 years). You only pay interest on the amount you actually use, then repay the principal during a "repayment period" (10-20 years).

HELOCs are particularly useful for phased remodeling projects. If you plan to remodel your master bathroom this year and tackle a guest bathroom next year, a HELOC lets you draw funds as each phase begins rather than borrowing everything upfront and paying interest on money sitting idle.

Pros: Only pay interest on what you actually borrow. Flexibility to draw funds as needed. Closing costs often lower than home equity loans (sometimes waived). Interest-only payments during draw period keep initial costs low.

Cons: Variable interest rates mean payments can increase unexpectedly. Your home is collateral. The flexibility can tempt overspending. Monthly payments jump when the repayment period begins and principal payments kick in.

A shower remodel is one of the highest-ROI bathroom upgrades you can finance

Option 3: Cash-Out Refinance

A cash-out refinance replaces your existing mortgage with a new, larger loan. The difference between your old balance and the new loan amount is paid to you in cash, which you can use for remodeling. For example, if you owe $250,000 on a home worth $550,000, you might refinance into a $400,000 mortgage and receive $150,000 in cash (minus closing costs).

This option made exceptional sense during the low-rate era of 2020-2021. In 2026, with mortgage rates in the 6-7% range, a cash-out refinance is most attractive for homeowners whose current mortgage rate is already at or near current market rates. If you locked in a 3% rate in 2021, refinancing to 6.5% significantly increases your monthly payment even before accounting for the additional cash borrowed.

Pros: Potentially lower rate than a home equity loan or HELOC since it is a first mortgage. Single monthly payment instead of managing two loans. Access to large sums for major renovations. Fixed-rate options provide payment stability.

Cons: Highest closing costs of any option (thousands of dollars). Extends your mortgage timeline back to 30 years. Disastrous if your current rate is well below today's market. Lengthy approval process delays project start.

Option 4: Personal Loan

Personal loans are unsecured, meaning your home is not used as collateral. You borrow a fixed amount, receive the funds quickly (often within days), and repay with fixed monthly payments over 2-7 years. Because there is no collateral, interest rates run higher than equity-based options, but the speed and simplicity make personal loans attractive for mid-range projects.

Personal loans work well for small bathroom remodels or targeted upgrades in the $5,000-$50,000 range. Many online lenders now offer competitive rates with fully digital applications that fund within 1-3 business days, letting you move quickly when you find the right contractor and want to lock in availability.

Pros: No home equity required. Your home is not at risk. Fast approval and funding. No appraisal or extensive paperwork. Fixed rates and predictable payments.

Cons: Higher interest rates than equity-based loans. Shorter terms mean higher monthly payments. Interest is not tax-deductible. Credit score heavily impacts the rate you receive. Loan amounts may not cover large-scale renovations.

From concept to completion: smart financing makes quality remodeling achievable for every budget

Option 5: Contractor Financing

Many established remodeling companies partner with lending institutions to offer financing directly to their clients. At Oakwood Remodeling Group, we provide flexible financing options designed specifically for remodeling projects. Contractor financing streamlines the process because you apply through a single company that handles both the work and the funding.

Contractor financing often includes promotional offers such as deferred interest periods, reduced rates for qualified borrowers, or flexible terms tailored to project timelines. Because the lending partner understands home improvement projects, underwriting may be more accommodating than traditional banks for renovation-specific borrowing.

Pros: Convenient single-source process. Often no closing costs or fees. Promotional rates (including 0% for qualified borrowers) can beat all other options. Pre-qualification usually does not affect credit score. Terms designed for remodeling timelines.

Cons: Limits your contractor options to those offering financing. Promotional rates may revert to higher standard rates if not paid within the promotional window. Some programs have deferred interest that compounds retroactively. Read terms carefully before committing.

Option 6: Credit Cards

Credit cards are not typically the first choice for major remodels, but they can work strategically for smaller projects or specific phases of a renovation. Cards offering 0% introductory APR for 12-21 months effectively provide interest-free financing if you can pay off the balance before the promotional period ends.

For a project like a small bathroom update costing $5,000-$10,000, a 0% APR card lets you spread payments over 15-18 months with zero interest cost. You might also earn cash back or rewards points on the spending. However, once the promotional period expires, rates jump to 18-28% APR, making this a dangerous option if you cannot commit to full repayment within the promotional window.

Pros: True 0% interest during promotional period. No application process if using existing cards. Earn rewards or cash back. No collateral required. Extreme flexibility in how you use funds.

Cons: Very high rates after promotional period ends. Limited credit amounts for most cardholders. Can damage credit utilization ratio if balance is high relative to limit. Not practical for large remodels. Some contractors charge processing fees for card payments.

Option 7: Government Programs

Several government-backed programs help homeowners finance improvements, often with more favorable terms than conventional lending. The two most relevant for remodeling are FHA 203(k) loans and energy efficiency incentives.

FHA 203(k) Rehabilitation Loans combine your mortgage and renovation costs into a single loan. The Standard 203(k) covers major structural work exceeding $5,000 with no maximum (up to FHA loan limits). The Limited 203(k) handles non-structural improvements up to $35,000. These loans require FHA mortgage insurance premiums and work with FHA-approved contractors, but they offer lower down payments and more lenient credit requirements than conventional options.

Energy Efficiency Credits and Rebates through federal and California state programs can reduce your project costs when you incorporate qualifying upgrades. The Inflation Reduction Act provides tax credits up to $3,200 annually for energy-efficient improvements including water heaters, insulation, and HVAC systems. California's utility rebate programs offer additional incentives for water-saving fixtures and energy-efficient lighting relevant to bathroom remodels.

Pros: Lower credit requirements (580+ minimum). Combines purchase and renovation into one loan. Energy credits directly reduce tax burden. Government backing means more favorable terms for qualified borrowers.

Cons: Extensive paperwork and longer approval timelines. FHA mortgage insurance adds to monthly costs. Must use approved contractors and follow HUD guidelines. 203(k) loans require detailed project proposals and inspections. Not ideal for homeowners who already have favorable mortgage terms.

Quality materials and skilled craftsmanship deliver lasting value regardless of which financing option you choose

Side-by-Side Comparison of All 7 Financing Options

Use this table to quickly compare the key characteristics of each financing option. Rates reflect typical 2026 ranges for borrowers with good to excellent credit in the Sacramento market.

How to Decide Which Option Is Right for You

The right financing choice depends on your unique combination of equity, credit, project scope, and personal priorities. Here is a framework to guide your decision:

Consider Your Equity Position

Sacramento homeowners who bought before 2020 have likely seen substantial equity growth. If you have 20% or more equity, home equity loans and HELOCs unlock the lowest rates. If you have minimal equity or recently purchased, personal loans and contractor financing are your best paths since they do not require home equity.

Match Financing to Project Size

• • Under $10,000 (fixture upgrades, small bathroom refreshes): Credit card with 0% APR or contractor financing
• • $10,000-$30,000 (standard bathroom remodel): Personal loan or contractor financing for speed; home equity loan for lowest rate
• • $30,000-$75,000 (master bathroom or kitchen remodel): Home equity loan or HELOC for best terms
• • $75,000+ (multiple rooms or whole-home renovation): HELOC for phased draws, cash-out refinance for single large disbursement

Sacramento Housing Market Context

The Sacramento region offers particularly favorable conditions for financing home remodels in 2026. Median home values around $550,000 mean most long-term homeowners have built significant borrowable equity. The region's continued population growth and limited housing supply support home values, reducing the risk that your post-remodel home value will decline. For a detailed look at what projects cost locally, see our Sacramento bathroom remodel cost guide and kitchen remodel cost breakdown.

How Much Should You Spend on a Remodel?

Before choosing a financing amount, establish a realistic budget using these widely accepted guidelines:

• • The 5-15% Rule: A single bathroom remodel should cost 5-15% of your home's value. For a $550,000 Sacramento home, that is $27,500-$82,500
• • The 30% Ceiling: Total renovation spending should stay under 30% of your home's current value to avoid over-improving for your neighborhood
• • The Payment Comfort Test: Monthly financing payments should not exceed 5-10% of your take-home pay. For a household earning $8,000/month after taxes, that means keeping remodel payments under $400-$800/month
• • The ROI Check: Bathroom remodels typically return 60-70% at resale. Budget with the understanding that you are paying partly for daily enjoyment and partly for equity growth

Proper financing lets you choose quality materials and experienced contractors without compromising your savings

Tips for Getting the Best Rates and Mistakes to Avoid

5 Ways to Secure Better Financing Terms

• • Check Your Credit Report First: Request free reports from all three bureaus 2-3 months before applying. Dispute any errors and pay down revolving balances to below 30% utilization. Even a 20-point credit score improvement can save thousands over the life of a loan
• • Get Multiple Quotes: Apply to at least three lenders within a 14-day window (credit inquiries within this period count as a single pull). Rate differences of even 0.5% add up significantly on $30,000-$50,000 loans
• • Consider a Co-Signer: If your credit is borderline, a co-signer with strong credit can unlock substantially better rates. This is common for younger homeowners with limited credit history
• • Time Your Application: Rates fluctuate with the broader economy. Monitor rate trends and be ready to lock in favorable terms when they appear. Pre-approval locks typically last 30-60 days
• • Negotiate Closing Costs: For home equity loans and refinances, closing costs are negotiable. Ask lenders to match competitor offers, waive origination fees, or roll costs into the loan balance

Common Financing Mistakes to Avoid

• • Borrowing Without a Detailed Estimate: Get a comprehensive, itemized quote from your contractor before finalizing loan amounts. Borrowing too little means an unfinished project; borrowing too much means unnecessary interest payments
• • Ignoring the Total Cost of Borrowing: A $30,000 home equity loan at 7.5% over 15 years costs over $48,000 in total payments. A personal loan for the same amount at 10% over 5 years costs about $38,200. Shorter terms with higher payments often save money overall
• • Skipping the Fine Print on Promotional Rates: Deferred interest is not the same as waived interest. If you carry any balance past the promotional period, you may owe all the interest that accumulated retroactively from day one
• • Draining Emergency Savings to Avoid Financing: Paying cash feels virtuous, but leaving yourself with no financial cushion is risky. A modest interest cost is worthwhile insurance against unexpected expenses
• • Not Factoring in Change Orders: Most remodels encounter surprises behind walls, especially in older Sacramento homes. Finance 10-15% above your estimate or confirm your loan has flexibility for moderate increases
• • Choosing the Cheapest Contractor to Minimize Borrowing: Financing a quality remodel that lasts 20 years is far smarter than paying cash for cut-rate work that needs repairs within five. Focus on value, not just lowest project cost

Start Your Remodel With Confidence

Understanding how to finance a home remodel removes one of the biggest barriers between you and the bathroom or kitchen you have been envisioning. Whether you choose a home equity loan for the lowest rate, a personal loan for the fastest funding, or contractor financing through Oakwood Remodeling Group for a seamless experience, the right option is the one that fits your financial situation while delivering the project quality you deserve.

Sacramento homeowners are in an excellent position in 2026. Strong home values provide borrowing power, a competitive lending market offers real choices, and quality remodeling companies like ours make the process straightforward from estimate to completion. Take the first step by getting a detailed project estimate so you know exactly how much to finance, then compare your options using the guide above. Your dream remodel is closer than you think.