Using a home equity loan for your remodel: What to know

If your home needs a refresh but you need cash to pay for a remodel, a home equity loan is a popular way to do so. More homeowners used a home equity loan for a remodel than any other funding source, according to a 2025 study from the National Association of REALTORS®. But before you commit to a home equity loan, it's important to know both how much you need to borrow and how much you can afford to repay comfortably.

Why using a home equity loan for a remodel is a popular move in 2025

Remodeling a home is expensive. However, it's much more affordable than the alternatives. With mortgage rates relatively high and a few homes for sale, moving can be more expensive and less desirable than upgrading the home you own.

Angi.com estimates the average cost of renovating a kitchen to be $26,967 and the average cost to remodel a bathroom to be $12,121. While you can borrow enough to cover those costs with a personal loan or a credit card, home equity loans¹ typically offer much lower interest rates and are therefore less expensive overall.

For instance, as of Dec. 3, 2025, The Wall Street Journal listed home equity loan rates between 6% and 7%, while the Fed reports the average interest rate on a 24-month personal loan as 11.4% and the average credit card rate as 21.39%, both as of August 2025.

Another advantage is that using a home equity loan to remodel or improve your home may make the interest payments tax-deductible. Consult a tax professional to help you determine if your project qualifies.

How do you use a home equity loan for home improvements?

Home equity is the difference between what your home is worth and how much you owe on it. If you've owned your home for any length of time, you likely have built up some equity. United States homeowners collectively hold more than $35 trillion in home equity.

A home equity loan allows you to borrow a percentage of your equity as a lump sum. You then make payments on the loan until it's repaid.

A home equity loan typically has a fixed interest rate, making it a predictable monthly expense to budget for. At Rocket Mortgage^®, you can choose between 10- and 20-year terms.

A home equity loan is a second mortgage, so you must pay closing costs, typically 1% – 5% of the loan amount. Also, your home serves as collateral for the loan, so defaulting on your payments could lead to foreclosure.

Calculating your available home equity

Before pursuing a home equity loan to fund your remodel, it’s a good idea to estimate how much you can borrow.

Lenders typically allow you to borrow 80% to 90% of your home’s appraised value, less your mortgage balance.

Here’s an example of how to calculate your home equity:

Let’s say your home is appraised at $500,000 and you owe $100,000 on your mortgage. Rocket Mortgage allows you to borrow up to 90% of your appraised value, minus what you owe. That means you could borrow up to $350,000.

$500,000 x 90% = $450,000 - $100,000 = $350,000

For a more precise estimate of what you can borrow, use this home equity calculator from Rocket Mortgage.

To qualify for a home equity loan, lenders typically calculate your current equity and check your credit score and debt-to-income ratio (DTI).

The pros and cons of home equity loans for home improvement

Home equity loans have advantages and downsides to consider before applying for one.

HELOC vs. home equity loan for a remodel

A home equity line of credit, commonly referred to as a HELOC, works a lot like a home equity loan. Rocket Mortgage doesn't offer HELOCs currently, but it does offer Home Equity Loans.

A HELOC lets you borrow money against your equity, just like a home equity loan. However, instead of receiving a lump sum, you get a line of credit based on your equity. You can draw money from this line of credit, like a credit card, as needed up to the maximum.

HELOCs typically have a draw period, where you can withdraw money from your HELOC, and a repayment period, where you can no longer borrow and repay the principal and interest.

You typically have a variable interest rate on a HELOC, which means your monthly payment can fluctuate.

For both HELOCs and home equity loans, the interest you pay may be tax-deductible if you use the loan to pay for home improvements. This depends on your specific situation, so you should consult a tax professional before making any decisions.

3 tips for using a home equity loan to remodel

Let’s dive into three practical tips to help you make a smart decision about using a home equity loan for a remodel.

1. Determine if the project adds value to your home

Some projects offer a better return on investment than others. You want to make sure that your remodel increases the value of your home or makes it a more enjoyable and comfortable place to live.

As for enjoyment, according to a 2025 Remodeling Impact Report by NAR, homeowners were most satisfied with adding a primary bedroom suite, upgrading the kitchen, and installing new roofing.

NAR also analyzed the recovered cost of projects. Installing a steel front door, for example, recovered 100% of its cost. This was followed closely by closet renovation (83%), putting in a new fiberglass front door (80%), and installing new vinyl windows (74%).

2. Establish a budget and repayment plan

Next, estimate your home renovation costs, including materials, labor, permits, timeline, and contingencies. Make sure you do this before you apply for a home equity loan. This way, you borrow the correct amount and budget for your monthly payments.

It's essential to align your project timeline with your loan term to avoid financial strain. And remember, construction projects are infamous for delays.

Consider the type of loan as well. Home equity loans are best for one-time projects that have a clear budget. HELOCs are better suited for longer-term or phased projects, where you don't need all the money at once.

3. Decide between DIY and hiring professionals

Finally, ask yourself if you could save money by doing some or all the work yourself. Be honest about your time and abilities. DIY projects often take longer and end up costing more due to mistakes, delays, and added costs. If you decide to tackle a project by yourself, budget extra time – especially if your home equity loan repayment schedule begins before you expect to be done.

Because home equity loans provide you with a lump sum, plan your remodel to match when payments to contractors are due. You can save money through DIY projects, such as painting, landscaping, or installing small fixtures. However, for significant projects, such as HVAC systems, structural improvements, electrical work, plumbing, and roofing, it's wise to hire licensed contractors.

Hiring a general contractor can streamline scheduling, inspections, and subcontractor coordination. Ultimately, this can help you stay on time and within budget.

Alternatives to home equity loans for a remodel

Can you get a home improvement loan that isn't a home equity loan or HELOC? Consider these alternatives:

• Cash-out refinance. This lets you borrow against your home equity by replacing your existing mortgage with a new, larger one and taking the difference in cash. Cash-out refinances often have lower interest rates than other types of loans, but they require refinancing your primary mortgage and require closing costs.²
• Personal loans. Like home equity loans, personal loans are issued as a lump sum, but they are unsecured. As a result, interest rates are generally higher than those of home equity loans.
• Credit cards. Useful for smaller or short-term projects, credit cards offer convenience but typically have higher interest rates.
• Savings. Using personal savings avoids interest and fees entirely. Begin with smaller projects to establish equity and confidence before undertaking larger renovations.
• Government loans. Programs like Title I loans from the U.S. Department of Housing and Urban Development help eligible homeowners purchase appliances, improve accessibility, or enhance their home's energy efficiency. Not all lenders offer these home improvement loans, so check the HUD lender list for options.

The bottom line about using a home equity loan for home improvements

Using a home equity loan to pay for a remodel can be an affordable way to add value to your home. Home equity loans typically have lower interest rates than unsecured loans, such as credit cards and personal loans. They also enjoy potential tax advantages and usually have fixed interest rates, making it easy to budget and plan.

But if you're considering a remodeling project and want to use your equity to invest further in your home, apply for a Home Equity Loan today with Rocket Mortgage.

¹Home Equity Loan product requires full documentation of income and assets, credit score and max loan-to-value (LTV), combined loan-to-value (CLTV), and home equity combined loan-to-value (HCLTV) ratios. Requirements were updated 11/19/25 and are tiered as follows: 680 minimum FICO with a max LTV/CLTV/HCLTV of 80%, 700 minimum FICO with a max LTV/CLTV/HCLTV of 85%, and 740 minimum FICO with a max LTV/CLTV/HCLTV of 90%. Your debt-to-income ratio (DTI) must be 50% or below. Valid for loan amounts between $45,000.00 and $500,000.00 (minimum loan amount for properties located in Michigan is $10,000.00). Product is a second standalone lien and may not be used for piggyback transactions. Product not available on Ameriprise products. Guidelines may vary for self-employed individuals. Some mortgages may be considered “higher priced” based on the APOR spread test. Higher priced loans are not allowed on properties located in New York. Additional restrictions apply. This is not a commitment to lend.

²Refinancing may increase finance charges over the life of the loan.