Fortunately, it's getting easier to finance home improvements. New options are being developed all the time. But all these new options also make it more confusing than ever. Refinancing, home equity lines, second mortgages, home improvement loans -- you name it, and it's out there.

Besides all the different types of loans, there are many different institutions ready to lend you money. Your contractor, your bank, a mortgage broker, your credit card company and many others may be approaching you with offers that sound great.

Here are answers to some common questions about financing home improvements:

Q: One of the companies we talked to about new windows says it offers no-hassle financing. Is financing through a contractor a good idea?

A: Both reputable and disreputable contractors offer financing. In many cases, the loan is actually issued by a bank or finance company that the contractor works with. As a consumer, you must understand that you are "buying" two things: home improvements and a loan. You choose a home improvement company based on quality of work, reputation, reliability and price. You choose a loan based on the payment terms, the lender's reputation, the interest rate and whether or not the loan will be secured by your home. Whether buying home improvements or loans, thoroughly investigate all your options before making a final decision.

Q: Three years ago we got into some trouble with our credit cards. We don't use them anymore. We'd like to finance an addition to our home. Is that realistic?

A: You will most likely be able to get a loan if your credit has been good these last three years. Each lender's qualifications will be different, so don't give up if the first lender says no. Many lenders have loans specially designed for people in your circumstances. Such loans may carry a slightly higher interest rate.

Q: To finance a remodeling project, is it better to refinance my first mortgage or simply to get a second mortgage?

A: Generally you have to look at two things. First, ask lenders about current market interest rates for first mortgages. If current rates are two percent or more below the rate on your current mortgage loan, there is a good chance you'll be better off refinancing. The other main factor is the closing costs. Generally, they are higher with refinancing than with second mortgages. Most mortgage brokers or bankers can give you a complete comparison of the two options and help you figure out which is right for you.

Q: My credit card sent me a flyer saying I can borrow up to $15,000 without any paperwork at all at only 7.9 percent. Can that be true?

A: Many credit card issuers will let you initiate loans by writing special checks called cash advances. Sometimes, they offer a low "introductory rate" which is usually good for a relatively short period of time. Afterwards, the rate can go up substantially. These loans are generally unsecured and carry high overall interest rates. Their simplicity and ease, however, make them ideal for short term financing for a few months.

Q: If I get a home equity line, do I risk losing my house?

A: The less risky the loan, the lower the interest rate the lender can charge. Any loan secured by a house or other real estate is less risky for the lender. They know that if you don't pay, they can force the house to be sold and use part of the proceeds to pay off the loan. With the property as a backup, they can charge a lower interest rate. Because of the lower interest rate and the likelihood that the interest will be tax deductible, most consumers finance home improvements with loans like home equity lines that are secured by their house. This makes good sense if your income is reliable. If, on the other hand, your income is highly variable, or you are facing considerable job insecurity, you should probably avoid secured loans -- or any loans for that matter.

by David Hollies, reprinted courtesy of HomeAdvisor.com