Today there are a number of good plans for financing home improvements on reasonable terms. What kind of loan is best for you depends primarily on the amount of money you need to borrow.

Ask yourself these basic questions:

  • How long is it going to take to do the whole job?
  • How much is it going to cost altogether?
  • Do I need the money for anything beyond this particular set of home improvements?

Your answers will determine which financing option you should choose. Using a credit card might be the best fit if the job is just a couple of hundred dollars. If you’re thinking about this route, think about a personal loan instead. Compared to credit cards, personal loans often have lower, fixed (not variable) interest rates that enable you to properly budget your repayment and still leave available credit on your cards for day-to-day conveniences.

Borrowing against your 401(k) is a relatively painless option because there’s no credit check, less lag time and low rates. However, chances are, that, after you are done paying it back, your 401K bottom line might be smaller than before the loan. You can also tap your portfolio securities by taking a margin loan. There’s no credit check, and you don’t have to pay back the loan if the market does well but if the market drops, you might be forced to sell.

Another option is to borrow on the cash value you’ve built up in your whole, universal or variable life insurance policy, but if you die before the loan is paid back your family wouldn’t get the benefits you originally had planned.

The more traditional route for borrowing for home improvements is to take out a home equity loan or line of credit. If the job is going to be more than a few hundred dollars or it’s going to be in stages — maybe add a garage, do some pool repair and remodel the bathroom later on—then a home equity loan is the best choice. If you’re going to do a one-shot, straightforward project such as putting in a pool, which will be paid upon completion of the project, the home equity loan is probably the way to go.

The government also has loan options that can help you if you don’t have a lot of equity in your home. A FHA 203k Loan has negotiable interest rates and is insured by the FHA. The loans can’t be used to pay for luxury, nonessential improvements such as swimming pools or work already done but things such as new windows, air conditioning systems, storm shutters or roof repairs qualify are acceptable. The government also has incentive programs, such as the solar energy program. As a last resort option, you can get a loan from your contractor. Tread lightly with this type of loan, though, because some contractors may not disclose finance charges.