How to Finance Your Deck or Patio

You’re ready to add a deck to your home. Maybe you want a place to relax, a place to party, a play for the kids to play or you simply want to add value to your home. 

You’ve done your homework. You figured out how much it will cost to build your deck, considered design ideas, building materials, researched any needed permits and maybe even gotten quotes from contractors. 

Now you’re probably wondering if and how you’ll be able to pay for everything.

While paying for everything in cash costs less in interest, most of us will need some kind of financing to cover the labor, materials and everything in between. The good news is that there are lots of deck financing options available, some requiring home equity, others based exclusively on your personal credit. 

This article can help you learn about some of the financing options you may want to consider and how to determine which one is right for you.

Deck Financing: What To Know 

Whether you use natural wood or composite decking, do it yourself or hire a deck builder, a new deck comes with costs, usually measured in terms of labor, materials and time.

Like any home improvement project, there are different ways to finance the construction of a deck for your home. The method you choose may depend on the following factors:

What is the estimated cost to build your deck?

The average deck usually costs between $4,000 and $12,000, or $30 – $60 per square foot.^[1] It’s important to have a sense of what your deck will cost because those costs may inform what kind of financing options make the most sense for you.

How much home equity do you have available?

Your home equity is the difference between the appraised value of your home and the amount you still owe on your mortgage.

Borrowing against your home equity can be an effective way to finance a deck or any home improvement project for two reasons. 

• You can get a low interest rate because your home acts as collateral.
• If you use your home equity to make renovations to your home, you may be able to deduct the interest from your loan when you file your taxes.

We’ll go into how you can figure out how much equity you have shortly, but it may be affected by factors like:

• The size of your original down payment.
• The length of time that you’ve been making mortgage payments and whether you’ve been able to pay extra toward the principal.
• Whether there have been any significant changes in home values for your area.

How quickly do you need the money?

Some financing methods take more time than others to process. Some can get you your money the same day. Meanwhile, any loan involving home equity will usually take an average of 1 month to complete from application to receiving your money.

What is your credit score?

Your credit score is the 3 magic numbers that determine if you can qualify for a loan. When you bought your home, you would have probably needed a minimum credit score of 620 to qualify for a conventional loan. To qualify for financing for a deck, you’ll probably need a higher credit score. 

The higher your credit score, the more likely you are to qualify for financing and the better the interest rate and other loan terms will be when you apply for it.

Do you plan to hire a contractor or do it yourself?

While working with a professional is usually a smarter move, it will cost more. On the other hand, there may be additional financing options available when you work with a contractor.

How To Finance a Deck Project

Now that you know what factors can affect your ability to finance your new deck, it’s time to get into the nitty-gritty of how best to do it. The following are some of the most common methods available for homeowners to finance a major home improvement like a deck.

Home improvement loan

A home improvement loan is essentially the same thing as an unsecured personal loan. A lender like a bank, credit union or online lender offers you a lump sum of money with the understanding that you plan to use the money to cover home improvements or renovations.

You then pay them back with fixed monthly payments over a predetermined period of time, usually ranging from 1 – 10 years.

It’s also a good option if you don’t have enough home equity to qualify for a home equity loan or line of credit (HELOC).

• Amount you can borrow: Personal loans usually allow you to borrow up to $20,000 though some lenders will allow you to get as much as $50,000 if you have excellent credit.
• Cost to borrow: Home improvement loan interest rates usually start around 10%^[2] and can go higher, depending on the amount you are borrowing and a review of your credit and income.
• What you need to qualify: Most personal lenders prefer a credit score of 670 or higher^[3] and may request that you provide them with proof of income, copies of your credit card and bank statements or tax returns.
• How quickly can you get your money: The biggest perk of a home improvement loan is that you can get your money quickly, sometimes in as little as one business day. 

Credit card

If you’re planning to build your deck yourself, or your costs are relatively low, you may want to reach into your pocket and use your credit card to pay for your new deck.

• Amount you can borrow: This will be based on your current credit limit and whether or not you’re currently carrying a balance.
• Cost to borrow: The annual purchase interest for most credit cards is around 15% – 25%. This makes it one of the more expensive ways to borrow. If you have good credit, credit card companies may offer you an introductory rate of as little as 0% when you first apply. However, these introductory rates usually only last for 6 – 18 months. After that, your interest rate is likely to jump back up to the 15% – 25% level.
• What you need to qualify: If you already have a credit card, nothing. If you’re applying for a new card, you’ll need to have some kind of positive credit history. If you don’t, you may need to wait until you can build your credit. 
• How quickly can you get your money: Assuming you have enough credit available, access to your credit is as fast as swiping your card or using it online. If you are applying for a new credit card, you can apply online or over the phone. You could be approved in a matter of minutes, but you may need to wait until your card arrives before you can start using it.

Credit cards are convenient, but be careful about borrowing more than you can afford or maxing them out; otherwise your deck could become a major source of debt.

Store credit card

If you’re a DIYer, you might consider getting a credit card from your local big-box home improvement retailer. These cards often offer rewards and financing options if you make purchases over a certain amount. Just be careful, as they can have higher-than-average interest rates for regular purchases.

Home equity loan 

If you have enough home equity, you can use it to finance home improvements. A home equity loan lets you borrow against the available equity in your home. You get a lump sum payment that you can use as you see fit. You then repay that loan in monthly installments, usually over a period of 3 – 20 years.

• Amount you can borrow: This will be based on your available equity, the appraised value of your home and your lender. Your lender will usually only let you borrow up to 80% – 85% of your home’s value minus what you still owe on your mortgage. So if you own a $300,000 home you may only be able to borrow against up to $240,000 – $255,000. If your mortgage balance is currently $175,000, the most you’d be able to borrow would be between $65,000 – $80,000.
• Cost to borrow: One of the biggest perks of a home equity loan is that it comes with a low interest rate, usually close to the rate you’d get for a mortgage loan. However, because your home acts as collateral on the loan, you risk losing your home if you don’t make your loan payments. A home equity loan also comes with closing costs similar to a home purchase which can add to the total cost of your loan.
• What you need to qualify: While this will vary by lender, you’ll probably need a credit score in the mid-to-high 600s to be considered.^[4] You’ll also need to provide proof of income, bank and credit card statements and information about your credit history.
• How quickly can you get your money: From application to closing, a home equity loan can take between 4 – 6 weeks to put money in your hand.

One added benefit of a home equity loan, you can deduct the interest on your loan from your taxes, as long as you’re using the money to buy, build or improve your home.

Home equity line of credit 

A home equity line of credit is like a cross between a home equity loan and a credit card. Instead of borrowing a lump sum of money upfront, you are given a line of credit based on the available equity in your home.

A HELOC usually has two distinct periods. 

• Draw period (5 – 10 years): You can draw on the available credit as much as you’d like. You’re only required to make monthly payments based on the interest. It’s usually a good idea to start making payments sooner.
• Repayment period (10 – 20 years): Once your draw period ends, you can no longer tap into the available equity, and you’ll need to make monthly payments to cover the interest and principal on the remaining balance.

This gives you greater flexibility in how you use your money and lets you avoid larger payments when you’re just getting started.

• Amount you can borrow: Like a home equity loan, the amount you can borrow with a HELOC is based on your available equity. The difference? You can draw on the line of credit when you need it and then pay the money back to replenish your available credit. That way you can continue to use the line of credit over the life of the draw period.
• Cost to borrow: The interest rate on a HELOC is similar to, but usually slightly higher than, a home equity loan. Also, the interest rate on a HELOC tends to be variable which means the interest can go up or down over both the draw and repayment periods. This means your monthly payments can change, making it harder to budget for your payments. Also, a HELOC usually comes with lower closing costs compared to a home equity loan, but may include a monthly maintenance fee which can vary by lender.
• What you need to qualify: The qualifications for a HELOC are similar to those you’ll need for a home equity loan.
• How quickly can you get your money: From application to closing, a home equity loan can take between 2 – 6 weeks to put your money in your hand.

Like a home equity loan, the interest you pay on a HELOC is also tax-deductible if you use the money to improve your home.

Cash-out refinance 

A cash-out refinance may be another option that can allow you to tap your available equity and get a lower interest rate on your mortgage. With a cash-out refinance, you refinance your mortgage loan. But instead of just borrowing enough to cover your mortgage balance, you can take out a loan against your available home equity. Whatever’s left after you pay off your original mortgage is yours to keep.

• Amount you can borrow: Like most home equity loans, you’re usually limited to 75% – 80% of the value of your home.
• Cost to borrow: With a cash-out refinance, your interest rate will essentially be the same as your mortgage interest rate. If you can refinance your loan to a lower interest rate you may be able to save money on your monthly mortgage payment. However, the cash that you borrow will also get added to your mortgage payment.

Also, like any mortgage, a cash-out refinance comes with closing costs which can equal between 4% – 6% of the loan amount.

• What you need to qualify: The qualifications for a cash-out refinance are similar to any home mortgage refinance, and your lender will probably require that you provide them with proof of income, bank statements and your most recent tax returns.
• How quickly can you get your money: From application to closing, a cash-out refinance usually requires 4 – 6 weeks to complete.

Renovation mortgages

If you’re planning to install a deck when you buy your home, you may be able to borrow money with a renovation loan such as a Federal Housing Administration (FHA) 203(k) loan, Fannie Mae HomeStyle® Renovation loan or Freddie Mac CHOICERenovation® loan.

Contractor financing 

Some contractors bring financing options with them to the job site. The contractor partners with a third-party lender who can offer you financing to help cover the cost of your new deck.

These loans, often referred to as contractor loans or builder loans, are convenient and ensure the contractor gets paid. It may also make homeowners willing to go for more expensive options if they don’t have to worry about paying for them upfront.

• Amount you can borrow: The amount you can borrow is usually at the lender’s discretion, but the decision will be based on a review of your credit.
• Cost to borrow: Interest rates for contractor loans can vary depending on your credit, the amount you plan to borrow, whether or not you can make a down payment and the length of your loan term. Ideally, the faster you can pay off your loan, the less it will cost you in the long run.
• What you need to qualify: Contractor loans are designed to be convenient, so you usually just need to agree to a hard pull on your credit report and won’t have to worry about providing proof of income.
• How quickly can you get your money: With a contractor loan, your contractor can get their money right away and they can start working on building your new deck.

While contractor loans can be a convenient way to finance your new deck, you’ll also need to put a lot of faith in your contractor and their preferred lender. Doing a little research before you agree to other types of financing can help you make an informed decision.

Stacking the Deck with Options

When it comes to financing your deck. You have a wide range of options available. Take the time to get quotes and learn which options are right for you. Not only will you be able to enjoy the deck of your dreams, but you’ll also enjoy knowing you don’t have to stress about how to pay for it.