How To Finance A Home Addition

9 Ways To Finance Your
Lancaster County, PA
Home Addition

Learn The Best Methods To Fund The Space
You’ve Always Wanted

One of the most common reasons Lancaster, PA homeowners don’t take the plunge on a home addition project is financing. Finding the budget and resources to pay for your dream project can seem daunting or out of reach. Fortunately, there are some tips and tricks that can help you finance your home addition.

Whether it’s a new master bedroom, a bonus room, or a larger kitchen – a home addition is a perfect way to add value and extra square footage to your home. A new space can be exactly what you need to fall in love with your home again.

But searching for home addition financing can be a confusing endeavor – especially if you’ve never gone through the process. Luckily, our experts are here to walk you through everything you need to know – let’s take a look!

Home Equity Line Of Credit

A home equity line of credit, or, as many people refer to it, a HELOC, is one of the most popular ways to finance a home improvement project. This type of loan operates similarly to a credit card – where you borrow against the equity in your home and can draw from that line for whatever purpose you need.

With this method, you tap into the equity you have earned from paying your mortgage through the years. Equity is the difference between the value of your home and what you still owe on the mortgage.

For a HELOC, the minimum payments are usually low at first. However, once you start the repayment period, the principal and interest are lumped into one monthly payment that usually lasts for 20 years.

Remember, since you are putting your house up as collateral with this line of credit, the bank could seize your home if you default on payments.

Home Equity Loan

A home equity loan is very similar to HELOC – with the main difference being that you are given the money in one lump sum. As soon as you have this loan, you need to start making payments on it, so there is no interest-only period or grace period.

Like the HELOC option, your home is your collateral for the loan. While it’s impossible to predict the future, ensure you are comfortable paying back your equity loan each month. Defaulting on your loan can impact ownership, and you could lose your investment.

Cast-Out Refinance

For those not willing to borrow against their equity and decide to take on what equates to a second mortgage, there is a cash-out refinance.

A cash-out refinance is where you refinance your mortgage for a higher amount than what you owe, and the difference is given to you – hence the “cash-out” name.

Many people take advantage of this option as they could end up with a lower interest rate than they originally had, saving them money on their monthly payments. Plus, you’ll have the funds you need to move forward with your Lancaster, PA home addition.

Personal Loan

If you have no equity in your home, you could opt for a personal loan from a credit union or bank. In this case, your home usually won’t be used as collateral, so it can be a safer option if you think you’ll struggle with payments.

However, depending on your credit score and history, you may need collateral or a co-borrower to be approved.

A personal loan is given to you in a lump sum, and you make monthly payments until it is paid off. Normally a personal loan has a lower interest rate than most credit cards – which is a plus for many people.

Credit Card

Believe it or not, a credit card can be a viable option for a home renovation or even a home addition – depending on your credit line. Remember, when you put the cost of a construction project on a credit card, it’s treated like any other purchase. That means you’ll pay interest on the balance each month.

If you opt for a credit card to pay for your home addition, you may consider shopping around for a credit card with no interest for one year – you can budget to pay the balance in one year to avoid the extra interest charge.


Many people decide to use their savings to pay for a home addition, which has its own unique benefits.

Homeowners who choose to pay with cash won’t incur any new debts. Additionally, you won’t be paying monthly interest – just the final cost of construction.

However, the downfall is that you may have to wait to start your home addition until you have saved enough money. It can be tough to keep the funds necessary to build your dream space – but this is your best choice if you’re willing to wait.

Draining your savings to complete a project can be a risky choice for some homeowners. If you don’t have any money in the coffers, emergencies or unexpected expenses will need to be paid with credit cards or loans. So, there is something to be said about keeping your savings if something unexpected happens that will require funding.

Contractor Financing

Most home remodeling contractors will have financing available to those looking to add to their Lancaster County, PA, home. It may be one particular bank they work with, or they may work with several local banks to find you a line of credit that fits your repayment schedule.

Even better, many contractors will offer deals in which you pay no interest for the first six months, allowing you to budget, so you aren’t paying extra for the home addition.

Plus, you will find that if you go with contractor financing, they will know you have the funding just as soon as you do — ensuring they can schedule your home addition as quickly as possible.

Government Programs

There are a few government programs in place that can help homeowners to pay for a home addition. For example, 203(k) loans are similar to cash-out refinance loans but are backed by the government.

If you qualify, the Title 1 loan is another option for your home addition. To qualify for the loan, the home addition must be practical, not luxury. Any government program will have a very long time frame of being approved and having the funds given to you — but they may offer a lower repayment rate.

Borrow From Your 401(k)

While many people borrow from their 401(k) to pay for home additions, this is not an option that many support. It is often considered a last resort. You will have five years to pay back the money, but you are borrowing against your retirement — which is why it should be a last resort.

Free Consultation For Your Lancaster, PA Home Addition

If you are ready to add the home addition you have always wanted to your Lancaster County, PA, house, we are here for you. Our team is experienced with finding the right options to fit any budget – and we offer flexible financing options to help ease the initial investment.

Contact us or call us at (717) 371-5136 to get started.

Share this article