There is no single “smartest” way to pay for a remodel. The smartest way for you might be disastrous for someone else. You need to consider all of the possibilities very carefully, ensuring that you understand all of the pros and cons of each option and how they could affect your finances. Then after comparing your total cost and any risk you might be taking, choose the payment method that is right for you.

The first, and most obvious, way to pay for a remodel is to pay cash. This probably means withdrawing money from a savings account to pay for the remodel. In times of economic volatility, be sure to check interest rates. If you are earning a higher rate of interest on your savings than you would pay on a home improvement loan, you would probably be better off to borrow.

There are a number of ways to borrow money to pay for your remodel:

– use a credit card (but be careful!), especially if the card pays you back a percentage in cash;

– consider a reverse mortgageespecially if you are over 55 and your house is mortgage free;

– borrow from your retirement account or 401K (this might be good for a young couple, but might be too risky for someone over 55);

– take a home equity loan or a home equity line of credit if you have enough equity in your home to cover the cost of the remodel;

– take out a home improvement loan (just watch the rates and terms);

– see if you qualify for a FHA Title 1 loan;

– consider refinancing your home and getting cash out to pay for the remodel;

– if your plans include energy-efficiency upgrades, see if you qualify for an energy-efficiency loan;

– or if the house is currently unliveable, consider a home restoration loan.

Be sure to take into account any tax credits you might be eligible to claim on your federal income taxes. Also check with your state government and your utility companies for tax credits and exemptions, rate reductions, or other incentives for energy-efficient remodeling. These credits need to be calculated into your total buget and into your repayment plan.