Deck Loans: Financing Options for Building a New Deck

Building a new deck can raise your property value, increase your living space, and add to your personal enjoyment.

But like other home add-ons and renovations, a new deck isn’t cheap.

The average cost can range from $4,000 to $10,000 (or more) depending on the size of the deck and building materials. 

Some homeowners save up and pay for the project with cash. Others, though, choose to finance the project.

The good news:

Several financing options are available to cover the cost.

Here’s a look at a few of the best deck financing options.

Deck Financing Through the Builder

When building a new deck, some homeowners work with a contractor or builder that specializes in deck construction.

And oftentimes, these builders offer financing solutions. 

This is simple and convenient since it’s a one-stop shop.

You can pick a deck design through the builder, and arrange financing through the company, too. 

Builders that offer deck financing usually partner with third-party lenders.

This can include banks or credit unions. Even though you’ll submit your loan application through the lender, the financial institution approves the loan and receives your payments.

In-house financing

Some builders offer true in-house financing.

Instead of working with the bank, the builder has its own finance department. You can make payments directly to the builder and pay for your deck over several months or years. 

One benefit of in-house financing is that credit isn’t usually an issue. The builder might approve financing regardless of bad credit or no credit.

Just know:

You’ll likely need a down payment with bad credit, and you’ll pay a higher rate.

Whether you get financing through a third-party bank or work directly with the builder, some builders have incentives. This can include 0% financing for 18 or 24 months, subject to credit approval.

Use a Home Equity Loan

Depending on your amount of home equity, you might qualify for a home equity loan. 

This loan uses your home as collateral. If approved, you’re often able to borrow up to 80 percent from your home’s equity. You’ll receive this money as a lump sum, and many home equity loans have repayment terms of 10 to 20 years.

One benefit of a home equity loan is that it’s a fixed-interest loan, so your monthly payments are predictable. They also have fairly low interest rates, and you might be able to write off the interest. 

The problem, though, is that your home secures a home equity loan. If you default on the loan, there’s the risk of foreclosure.

Apply for a Home Equity Line of Credit

If you’re comfortable using your home’s equity, another option is to apply for a home equity line of credit (HELOC). 

This method also lets you tap your home’s equity.

Similarly, you can typically borrow up to 80 percent of your home’s equity. But you don’t receive a lump sum of cash. Instead, this is a revolving credit line similar to a credit card. Your monthly payments are based on how much you withdraw from the line of credit.

Although similar to a credit card, the interest rate on a HELOC is typically less than the average credit card. 

The draw period on a home equity line of credit is around 10 years. So once you’ve paid back the funds used to finance the deck, you can continue to draw from the line on an as-needed basis. This comes in handy if you have other home projects to finance.

Like a home equity loan, you might be able to write off the interest on a HELOC. But again, your home secures the line of credit. So there’s the risk of foreclosure if you default.

Get a Cash-Out Refinance

When mortgage interest rates drop, many homeowners use this opportunity to refinance their mortgages.

A mortgage refinance can reduce your interest rate and monthly payment, and it also provides an opportunity to borrow cash from your equity.

The cash you receive from a cash-out refinance can provide funds needed to finance a deck project. 

Understand, though, a cash-out refinance will increase your mortgage balance. So even if you  qualify for a lower mortgage rate, a higher loan balance means that your mortgage payment could increase or remain roughly the same.

Keep in mind:

Refinancing involves getting a new mortgage to replace your existing home loan. Therefore, you’re required to apply for a new mortgage, and you’ll have to repeat the underwriting process. 

Refinancing also involves paying closing costs again. These lender and third-party fees can range from 2 percent to 5 percent of the loan amount.

Use a Personal Loan

Another option is to apply for a personal loan.

Personal loans are funds received from a bank or credit union. They’re often use for different purposes, such as debt consolidation, business startup, home renovation projects, vacations, etc.

But although an option, getting a personal loan is a bit harder than qualifying for the aforementioned financing options. This is especially true if you’re looking to get an unsecured personal loan.

These particular loans aren’t secured by personal property, so they’re often reserved for people who have an excellent credit history.

Unsecured personal loans also have higher interest rates, making them a costlier alternative.

You can also apply for a secured personal loan. These loans require collateral, which is personal property of equal value that secures the loan. If you default on the personal loan, the lender can claim your property.

Loan terms with a personal loan vary. Additionally, the interest rate on a personal loan is usually higher than the rate on a home equity loan, HELOC, and cash-out refinance. However, personal loan rates are often lower than credit card rates.

Different financial institutions offer these loans, such as big banks, community banks, credit unions, and online lenders.

Finance Using a Credit Card

Some homeowners opt to finance a deck project with a credit card. If you already have an account with available credit, this might seem like the easiest choice.

You don’t have to apply for a loan or wait for an approval. And with a credit card, you don’t have to pledge collateral.

The problem:

Credit card interest rates can be considerably higher than other financing solutions. Therefore, you could end up paying more for a new deck in the long run.

In addition, credit cards are a type of revolving credit line. So using a credit card to finance a new deck could significantly increase your credit utilization ratio, which might hurt your credit score.

Not to say you shouldn’t or can’t use your credit card for the project.

If you do, though, use a credit card that has a low interest rate, preferably an introductory rate of 0%. You should also create a plan to pay off the credit card as soon as possible.

Other Tips on Financing a New Deck

Here are a few tips and things to consider before financing a new deck:

1. Check your credit first

Before applying for a loan, always check your credit history. You can order your credit report from Annualcreditreport.com, and your credit score from MyFico.com. 

The higher your credit score, the better.

This can help you qualify for the best interest rate, which helps keep your deck project affordable. 

The best ways to improve your credit score include paying your bills on time, paying off existing debt, and only applying for new credit when necessary.

You should also dispute any errors on your credit report.

2. Shop around

Loan rates can vary from lender-to-lender.

Whether you’re thinking about getting financing through a builder, using your home’s equity, or getting a personal loan, always shop around and compare loan rates and terms. 

This is crucial to getting an affordable rate. Ideally, you should get rate quotes from at least three different lenders.

3. Notify your homeowner’s insurance company

Don’t forget to notify your homeowner’s insurance company after a major change or renovation to your home. 

A new deck is considered an addition -- so it’s important that your policy covers this part of your home.

Some homeowners make the mistake of forgetting to tell their insurance company about improvements. 

If you don’t disclose this information, your insurance company might not repair or replace your deck if it’s damaged by fire, vandalism, or a natural disaster.

Final Word

Home improvement projects can enhance your living space and create a home you love.

But many projects aren’t cheap, so many homeowners rely on financing. 

Fortunately, several financing solutions are available based on your needs.

Whether you prefer in-house financing, using your home’s equity, a personal loan, or using a credit card, it’s possible to get the funds you need to transform your house and expand your space.