Most homeowners who completed a home renovation in 2017 dipped into their savings to do so, according to a recent survey by the real estate site Houzz. However, people also tended to use multiple sources of funding and were often comfortable borrowing against the home's equity.

Houzz conducted two surveys to look at how homeowners were financing their remodeling and renovation projects. One, done in conjunction with Synchrony, analyzed 10,602 responses from homeowners who paid for home improvements in 2017 with at least one credit card. Another survey, done in partnership with Bank of America, collected 10,301 responses from homeowners who paid for improvements with secured financing.

Cash and credit

Eighty-five percent of respondents used some of their personal finances to pay for a home improvement project. However, a smaller share of respondents—54 percent—said they only used personal funds to pay for a project.

Credit cards were the next most popular option for financing a home renovation, with one-third of respondents saying they had charged at least some of the project expenses. This payment method was usually combined with cash, with the typical homeowner putting up to 25 percent of the project's cost on a credit card.

Homeowners typically used this method for the ability to gradually pay off the expense of a home renovation. Sixty-two percent of respondents in the Synchrony survey paid off the balance over time instead of right away. Homeowners typically took advantage of promotional offers on a credit card, with 58 percent using a card charging no interest on monthly payments and 16 percent using a card with a low interest rate.

Forty-four percent of those using a promotional credit card said they did so because it offered lower costs. Twenty-eight percent cited ease of use, while 24 percent said the longer payoff period was helpful.

Among homeowners using a non-promotional credit card for home improvement costs, 38 percent said it allowed them quicker access to funds. Thirty-five percent cited ease of use, while one in four said the card gave them better rewards.

Millennials, or those between the ages of 25 and 34, were most likely to use credit cards for a home renovation. Forty-one percent did so, compared to 30 percent of baby boomers (ages 55 and older).

Secured loans

Fifteen percent of homeowners used a secured loan, or one backed by collateral such as the residence itself, to acquire money for a home improvement. This included 7 percent of respondents who took out a home equity line of credit, 5 percent who used cash-out refinancing, and 4 percent who used a home equity loan.

Those borrowing against their home's equity were usually financing more expensive projects. Those spending $50,000 or more on a project were three times as likely to use secured financing as those spending between $5,000 and $14,999. Homeowners using financing for a project spent a median of $32,000 on a home renovation, while those using cash along spent a median of $13,000.

Houzz said home equity lines of credit were the most commonly used type of secured financing. Approximately $157 billion in HELOCs were originated in 2017, making up more than 60 percent of financing secured by real estate during the year. Thirty-nine percent of respondents said they chose a HELOC for its ease of use, while 38 percent did so because of its low cost, 30 percent for quick access to funds, and 29 percent because it offered a tax deduction.

"Recent record gains in home equity give homeowners greater confidence to invest in their home, spurring growth in the more than $300 billion home improvement market," said Nino Sitchinava, principal economist at Houzz. "Our study confirms that a meaningful share of homeowners are tapping into it to fund large-scale renovations, such as kitchen and bathroom remodels. Secured loan originations will likely continue to grow in the near term as homeowners increasingly find it advantageous to stay put and renovate rather than trade up to a nicer home in an environment of tight housing inventories and higher interest rates, among other factors."

Generation X respondents, or those between the ages of 35 and 54, made up the greatest share of renovating homeowners at 40 percent. They also spent the most money on their projects, with a median spend of $38,000. Millennials and baby boomers spent a median of $30,000.

Generation X homeowners were also the most likely to get a secured loan, with 17 percent doing so. Fifteen percent of baby boomers who completed a home improvement project in 2017 used a secured loan, along with 10 percent of millennials.

Borrowers typically expected that they will pay off the loan within five years. However, 32 percent said they opted for a longer payoff period.

Fifty-seven percent of respondents who used secured financing did so with a promotional interest rate. This included 61 percent of those using a HELOC, 58 percent of those using home equity loans, and 47 percent of those using cash-out refinancing.

Other funding sources

Nine percent of respondents said they used other personal finances to pay for home improvement expenses. These funding sources included gifts, inheritances, and loans from family members.

Just 2 percent of respondents opted to take out an unsecured loan. This type of loan is granted based on the borrower's income and credit history, and is typically offered through a bank or credit union.