So, you’ve decided to tackle that big home-improvement project — remodeling the kitchen, finishing the basement or adding a room. You’ve obtained competitive bids and selected a contractor. Only one thing remains before you finalize the contract: figuring out how you’ll pay for the work.

When a home-improvement project will cost more than you can afford to pay up front, you may consider some form of financing. It is as important to carefully consider all the available financing options as it is to find the right contractor to do the actual work.

The first way a homeowner can obtain home-improvement financing is to get a direct loan from a local bank or credit union. This is often the most inexpensive financing available, because you won’t have to pay a broker or middleman and should be able to get the best available interest rate. However, if you don’t have a good credit rating or a good relationship with a bank, you may have some difficulty getting a direct loan.

The second is through builder or contractor financing. Many contractors offer installment contracts allowing the homeowner to make payments over a specified period of time. Often, the contractor will then sell the contract to a lender or finance company.

The third and probably most common financing method is when the contractor refers you to a loan broker or mortgage broker, who takes your application and shops around for your loan.

While it is convenient to get your financing through the contractor, this may carry additional costs and risks. You’ll have to pay the broker’s fee, typically as much as 3 percent of the loan amount. The contractor may steer you to higher-rate loans or dishonest brokers in exchange for a portion of the loan fees.

Whichever form of financing you choose, it is important to read all of the documents and disclosures and to know exactly how much it will cost, both in terms of the up-front closing costs and the ongoing interest rate you’ll pay.

Michelle Weinberg is a senior staff attorney with the Legal Assistance Foundation of Metropolitan Chicago and a member of the Board of Directors for the National Association of Consumer Advocates.