How to Use a HELOC for Home Renovations?

It’s becoming increasingly difficult to own a property because of rising prices and interest rates. That means it’s more affordable to renovate your current home than to find a new residence. You can use your home equity to get the funds required for renovations.

A home equity line of credit allows you to borrow from the equity you’ve built up in the property. Using a HELOC is a good idea if:

You’ve owned the house for at least a couple of years.
The home prices have gone up in your area.
You have a stable income source.
The interest rate on HELOC is affordable.
The repairs cannot be delayed any longer.

Do You Have Tappable Equity in the House?

What is the status of your mortgage? How long have you owned the house? And how many payments have you made so far?

You should have equity exceeding 20% of the property value. Most lenders will not consider your application with 10–15% equity.

You have two loan options to borrow against your home equity.

Home Equity Loan
Home Equity Line of Credit (HELOC)

What is a Home Equity Loan?

A home equity loan is considered a second mortgage. It has a high interest rate compared to traditional mortgages. Since your home is the collateral, you are putting it at risk. Failure to pay the loan can result in a foreclosure.

Many home equity loans have a minimum borrowing requirement. You might be forced to obtain a larger loan than you need right now.

Home equity loans have strict borrowing requirements. You will need a good credit score and a debt-to-income ratio of less than 43% to qualify.

What is a Home Equity Loan of Credit (HELOC)?

Home Equity Line of Credit allows you to borrow money as you need it. It acts like a credit card. Many people choose a HELOC to cover medical expenses or to gather funds for college education. There is no minimum borrowing limit. You can keep the line of credit open for a few years before the repayment period starts. There can be an annual fee to keep the credit line open.

HELOCs come with variable and high interest rates. Consult your loan provider to ensure you understand all the terms. Once the draw period is over, high payments are enforced.

Using a HELOC for Home Renovations

HELOCs are useful for real estate investors. If you have just bought a house, you can use the property equity to rehab the house. It allows you to maximize your property’s value and ROI with affordable interest rates. Since it’s a secure loan, HELOC comes with a lower interest rate compared to personal loans or credit cards. The interest rate paid on HELOC is tax-deductible if you used it for home improvements.

How Much Can You Borrow with HELOC?

A typical HELOC allows you to borrow up to 85% of your home’s appraised value, minus any existing mortgage balance. With certain lenders like Renofi, you also have the option to borrow against your home’s predicted value after renovation.

Use a HELOC for Renovating a Fixer Upper

According to Bankrate's home affordability survey, 34% of prospective homebuyers are willing to invest in a fixer-upper to find a place they can call home.

Imagine finally buying your dream home that’s not in perfect condition. You start paying down the mortgage, and once you have some equity, you can use it to pay for your renovations. Remember, equity in your home goes up as the market value increases. Equity also goes up slowly when you pay down the mortgage.

Cons of HELOC Financing

Your home acts as collateral, so failure to repay could result in foreclosure.
Many HELOCs come with adjustable rates, meaning your payments could increase over time.
Annual fees, closing costs, and appraisal fees can add up, increasing the overall cost of borrowing.

How to Get Approved for a HELOC?

Applying for HELOC isn’t as straightforward as swiping a credit card. Here’s what you need to know:

Most lenders require at least 20% home equity.
A score of 620+ is often required, but better rates come with 700+ scores. Your debt-to-income ratio should ideally be under 43%.
Lenders may require an appraisal to determine your home’s current value.
Different banks and credit unions offer different HELOC rates and terms. It’s best to shop around and search for the best option.
The approval process can take anywhere from 2–6 weeks.
You can borrow from your HELOC for typically 5–10 years before repayment begins.
After the draw period, your HELOC enters the repayment phase, where monthly payments increase.

Which Financing Option is Best for You?

HELOC vs. Cash: A Direct Comparison

Many homeowners struggle with the decision between using cash or a HELOC for renovations. Here’s a quick comparison:

Feature	HELOC	Cash
Upfront Cost	Low, but has closing costs and potential fees	High, since you're using savings
Interest	Variable interest rate (can increase over time)	No interest
Risk	Home is collateral; failure to repay could lead to foreclosure	No risk of losing your home
Flexibility	Borrow as needed; pay interest only on what you use	Limited to the cash you have available
Best For	Large projects, spreading out costs over time	Smaller projects, avoiding debt

A simple rule of thumb: If you can afford to pay in cash without significantly depleting your savings, that’s the safest option. If you need a larger budget or prefer spreading out payments, a HELOC may be a better fit.

At Quality Builders, we’re here to help you navigate these decisions. Contact us today to discuss your renovation project and explore financing options that work best for you.

A HELOC works like a credit card—you borrow only what you need, when you need it, during a "draw period" (usually 5-10 years). You pay interest only on the amount withdrawn. After the draw period ends, repayment begins.

A home equity loan, on the other hand, gives you a lump sum upfront with a fixed interest rate and predictable monthly payments. It’s better for one-time expenses, while a HELOC is ideal for ongoing or unpredictable costs (like phased renovations).

HELOCs usually have variable rates (currently between 7-10%), while home equity loans offer fixed rates (often slightly higher than primary mortgages). Personal loans, being unsecured, tend to have higher rates depending on credit.

Right now, if you prefer stability, a home equity loan might be better. But if you expect to pay off the balance quickly, a HELOC’s flexibility could save you money.

Most HELOCs don’t have prepayment penalties, but always check your lender’s terms. Some may charge fees if you close the account within the first few years.

You can use the existing equity to rehab an investment property. A HELOC gives you quick access to cash for repairs without pulling out a separate loan. You only pay interest during the draw period, which is helpful for short-term flips.

How to Use a HELOC for Home Renovations?