You’ve heard it before: “Nesting is investing.” That is to say, people increasingly regard home improvement as a prudent and judicious way to invest their savings. With the surge in home prices, homeowners are gaining more equity. This not only stimulates more people to want to invest in their homes, but it also gives them easier access to home equity loans to do it.  

How Do Homeowners Cover the Costs of Home Upgrades (and Repairs)?

Do homeowners borrow to finance these kinds of investments? Or are they paying with money they have on hand? According to HomeAdvisor’s 2017 True Cost Report — a survey of homeowners who have recently completed home improvement projects — just 20 percent borrowed to pay for their projects, at an average of $6,041. As one might expect, the survey further found that homeowners facing a large, expensive project are more likely to use borrowed funds to cover at least some of the costs than those taking on a smaller project.

What’s more, since the type of the project influences the type of financing used, the results are divided between maintenance projects and actual improvement projects.

  • Seventy-two percent of homeowners who financed a home maintenance project reported that they were most likely to do so with a credit card.
  • When it comes to financing improvement projects, credit card use falls to 44 percent, while home equity loan or line of credit use rises from 3 percent to 23 percent.

The length of time lived in home also makes a difference in a homeowner's outlook and financing needs. Nearly 32 percent of homeowners who have lived in their homes for more than 10 years report using a home equity line of credit (HELOC) or loan (31.6 percent) to finance home improvement, compared with just 10 percent of homeowners who have lived in their home 10 years or less. This is due in part to project size and cost, as those living in the same home for more than 10 years often have to replace a roof or a major appliance, which drives up the average. 

Interestingly, homeowners who’ve lived in their home for 10 years or less are more likely to borrow from the store or home center where they are buying their materials or fixtures (23.7 percent), than those who have been in their home for more than 10 years (12.3 percent).

The report also shows that homeowners in rural areas are more likely to take out a HELOC loan for a home improvement project (47 percent) than are urban (21 percent) or suburban (17 percent) homeowners.

The Decision

How should an individual homeowner approach this decision? It all comes down to personal circumstances. 

It’s always better to utilize savings, so long as those savings haven’t already been earmarked for something specific. If dipping into savings isn’t an option, there are two courses of action:

  1. If the project can wait, spend some time deliberately saving the money to pay for the upgrade.
  2. If there is urgency, then an equity loan can be utilized, and good rates are available these days.

So, if the $64,000 question is whether to add a mother-in-law-suite, put on an addition, build a garage or remodel the entire home, homeowners will typically borrow the funds.  In fact, projects costing $5,000 and up most often involve some credit.  In this environment of low interest rates and strong equity, that makes a lot of sense.

For smaller projects, homeowners are better off saving up the cash.  If finances are tight, homeowners should try to take smaller bites, so they don’t eat up too much of their savings. 

Brad Hunter is Chief Economist at HomeAdvisor


Investopedia and HomeAdvisor have or may have had an advertising relationship, either directly or indirectly. This post is not paid for or sponsored by HomeAdvisor, and is separate from any advertising partnership that may exist between the companies. The views reflected within are solely those of HomeAdvisor and their Authors.

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