Short answer: before you borrow, check whether your homeowners insurance covers the damage, and get written estimates. Then pay the contractor in stages, never everything up front, and do not take financing a contractor arranges without comparing it (FTC). On the example below, borrowing the gap costs about half as much in interest on a loan at the average rate as on a credit card at the average rate.
Step 1: insurance
If the damage came from a sudden event, such as a storm or a burst pipe, read your homeowners policy and call your insurer before you sign a repair contract. Ask what it covers, what your deductible is, whether it wants to inspect the damage first, and what records to keep. Emergency steps to stop more damage may be part of what the insurer expects; ask.
Step 2: estimates and a written contract
The FTC's advice when hiring a contractor (FTC):
- Consider only licensed and insured contractors; check the license with your state or county and ask for proof of insurance.
- Get several written estimates that describe the work, materials, completion date and price, and ask about big differences between them.
- Even if your state does not require a written contract, ask for one. It should include the contractor's name, address, phone and license number, start and completion dates, any promises made about scope and cost, and, if you signed at home or away from the seller's place of business, your right to cancel within three business days. Make sure no blanks are left.
- Watch for warning signs: knocking on your door because they are in the area, leftover materials, pressure for a quick decision, payment in full up front or cash only, asking you to get the permits, or suggesting a lender they know.
Step 3: pay in stages
Do not pay the full amount up front. Some states limit how much a contractor can ask as a down payment, and you should not make the final payment until the work is done and you are satisfied (FTC). Example only, a made-up schedule for a $4,000.00 roof repair; check what your state allows:
| When | Payment |
|---|---|
| Contract signed | $400.00 |
| Materials delivered and work started | $1,600.00 |
| Work finished and inspected, to your satisfaction | $2,000.00 |
| Total | $4,000.00 |
Step 4: paying the $2,500.00 gap
Example only, our calculation: the $4,000.00 repair is not covered, $1,500.00 comes from savings, and $2,500.00 is borrowed for 12 months, interest counted monthly. Rates: the Federal Reserve's August 2026 averages for commercial bank credit card accounts that paid interest (22.36%) and 24-month personal loans (11.90%) (Federal Reserve G.19); your rate depends on your credit and the lender.
| Option | Monthly payment | Total paid | Interest |
|---|---|---|---|
| Personal loan at 11.90% APR | $222.01 | $2,664.12 | $164.12 |
| Credit card at 22.36%, paid in 12 equal payments | $234.42 | $2,813.04 | $313.04 |
Loan payment: P x r / (1 - (1 + r)-n), r = APR / 12, rounded to the cent.
- Contractor-arranged financing. The FTC warns of a scam where a contractor arranges a loan through a lender it knows, then rushes you to sign papers that turn out to be a loan against your home. Never agree to contractor financing without shopping around, never sign a document you have not read or that has blanks, and never transfer your deed without advice from an attorney or someone you trust (FTC).
- HUD Title I. Under HUD's Title I program, approved lenders can get federal insurance on loans made to repair or improve a property (24 CFR 201.1). Ask a lender whether it makes Title I property improvement loans.
- Loans secured by your home. A loan secured by your home puts the home at risk if you cannot pay; see secured vs unsecured loans.
- Credit card. Paying by card can give you dispute rights if the work goes wrong; when they apply is in the card section of paying for a car repair.
If something goes wrong
Try to resolve it with the contractor first, follow up calls with a letter sent by certified mail with a return receipt, and keep copies. If that fails, the FTC points to your state attorney general or local consumer protection office, your local home builders association and dispute resolution programs (FTC).
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Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.