Home values continue to escalate and home inventories for buyers are low. That’s a conundrum for homeowners. Do you sell and take the money now or wait until prices go up even more? There’s a third option. It’s called home improvement. You can build additional value into your home. A new survey from Angi found that the top feature that boosts a home's value across markets is a pot filler, a sink attachment located over your cooktop stove that makes it easier to add water. This costs between $600 and $2,000 to install but can boost your home's price premium by over 3%. Seems like a win-win? But home improvements can be expensive. One of the best ways to cover the cost and increase your home's value is with a home improvement loan. There are so many ways to make your home more valuable and a home improvement loan can be an essential part of that. Here is how a loan for improvement works.
We found 9 options for your requirement
4.49% - 20.49%Est. APR Range
$5,000 - $100,000Loan Amount
2-20 yearsLoan Term
Good For: Offers longest loan term, no fees
6.99% - 22.28%Est. APR Range
$5,000 - $100,000Loan Amount
2-7 yearsLoan Term
Good For: High loan amounts available, no fees
7.99% - 29.99%Est. APR Range
$7,500 - $50,000Loan Amount
2-5 yearsLoan Term
Good For: Longest possible loan term
5.35% - 35.99%Est. APR Range
$1,000 - $50,000Loan Amount
3, 5 yearsLoan Term
Good For: Low loan amount
5.94% - 35.97%Est. APR Range
$1,000 - $50,000Loan Amount
2-7 yearsLoan Term
Good For: Low loan amount
5.99% - 35.99%Est. APR Range
$2,000 - $50,000Loan Amount
3-5 yearsLoan Term
Good For: Low min. APR for bad credit score
9.95% - 35.99%Est. APR Range
$2,000 - $35,000Loan Amount
2-5 yearsLoan Term
9.99% - 35.99%Est. APR Range
$2,000 - $36,500Loan Amount
2-5 yearsLoan Term
18% - 35.99%Est. APR Range
$1,500 - $20,000Loan Amount
2, 3, 4, 5 yearsLoan Term
What is a home improvement loan?
A home improvement loan is essentially a loan used for home improvements. There are different types of home improvement loans. In this article, we’ll profile unsecured personal loans for home improvement. They can be obtained from most lenders and are set up as installment loans with payment terms of one to seven years. The interest rate is fixed, as are the monthly payments. Read on to learn how they work and how to apply for one.
How do home improvement loans work?
Home improvement financing can be for any amount. They usually range somewhere between $5000 and $100,000, depending on the amount of work the homeowner wants done. Once obtained, the loan funds can be used to pay for materials, workers, licensing, and other home related expenses. Interest rates are determined by the credit score of the borrower.
How do I use a loan for home improvement?
Because a loan for home repairs is a type of personal loan, you can use it for just about anything you need related to a home improvement project. This can include tools, supplies, or even hiring a professional to do the work. Once you apply and are approved for the loan, you’ll be sent the loan funds either through direct deposit into your bank account or a paper check. After you receive the funds, you can then use them as you would any other cash.
However, keep in mind that you’ll be required to start paying the loan back right away plus interest, so it’s important to budget for the monthly payments prior to applying for the loan.
Where to get home improvement loans
Since home improvement loans are a type of personal loan, you can get one from either a bank, credit union, or online lender. Banks and credit unions may be better if you’re already an existing customer or member, and if you have an excellent credit score. These institutions typically have higher interest rates and stricter qualifications than online lenders. Online lenders also have faster application, approval, and funding processes, sometimes within the same or next business day.
What are the different types of home improvement loans
When it comes to home improvement personal loans, there are a few different types. The first, as we are discussing in this article, is a personal loan. But other types include:
1. Cash out refinance
Refinance to a new mortgage loan with a larger balance than your current mortgage. Then, pay off your existing mortgage (with the new one) and keep the remaining cash. This can add to your home’s equity, and technically you can use the cash for anything. It’s a good idea when you can re-do your loan at a lower interest rate, or adjust the term to pay off the loan sooner. However, closing costs apply to the larger amount, the new loan will have a larger balance accruing interest, and refinancing starts your loan term length over.
Related Article: How Does Cash Out Refinance Work?
2. FHA 203(k) rehab loan
If you’re buying a fixer upper and need loan funding, you can apply for an FHA 203(k) rehab loan. Backed by the government, it bundles your mortgage and home improvement costs into one. While mortgage rates and down payments can be low, and you don’t have to have an excellent credit score, it’s only designed for older or fixer-upper homes with renovations costing more than $5,000, and there are rules for how you can use the cash.
3. Home equity loan
If you have a lot of equity in your home and need cash for a big project, a HEL may work for you. It allows you to borrow against the equity you’ve built in your home and is dispersed as a single payment. You’ll be required to pay off both your mortgage and the HEL, and having a second mortgage payment can be difficult to repay without carefully budgeting. They also likely have fees and other closing costs. But these rates are usually fixed and they have long terms, making them great for larger projects.
Related Article: How Does a Home Equity Loan Work?
4. Home equity line of credit
A HELOC is similar to an HEL, but functions more as a credit card does. You can borrow from the HELOC (up to a preapproved limit) and then pay it back, and then can borrow from it again. If you have longer or more expensive projects and an excellent credit score, this can be a good option. But note that the interest rates are variable, and the loan term can range from 5-20 years and the repayment terms can be changed.
Related Article: How Does a Home Equity Line of Credit Work?
How can I get a loan for home repairs with no equity
Equity is the difference between the appraised value of your home, and what you owe on your mortgage. If your home is worth more than your mortgage, you have positive equity. If it’s worth less, then you have negative equity. Negative, or no equity, can happen if you buy your home with a smaller down payment or your home’s value decreased.
Even if you don’t have equity in your home, you can still get a home improvement loan. Try applying for an unsecured home improvement loan or personal line of credit, neither of which require collateral but have flexibility to pay for home improvement projects and upgrades. Credit cards can also be used.
When should you take out a home improvement loan?
If you have a large home improvement project that will take either a long period of time to complete or a large amount of money, and you don’t have enough cash in savings or emergency fund (or enough time to generate more savings), a home improvement loan can be an option.
However, you’ll want to be sure you have a strong enough credit score and credit history to get low interest rates, because a home improvement loan is a type of debt you’ll have to repay. Be sure you can afford the monthly payments and it fits into your budget. You should also explore other financing options to make sure you’re finding the best one for your financial situation and personal needs.
Who are home improvement loans best for?
Home improvement loans are best for borrowers who:
- Need extra cash to complete home improvement projects or renovations.
- Have great to excellent credit scores, allowing them to get lower interest rates on the loan.
- Can afford the monthly payment and are able to repay the loan within the term.
- Have compared all of the options to find the best personal loan for them.
Home improvement loans vs. equity financing
If you don’t have enough equity in your home, or don’t want to use it as collateral and risk losing it, you may want to apply for a home improvement loan. However, if you do have equity, you may be able to get a lower monthly payment on a HEL or HELOC. Compared to personal loans, HELs typically have lower rates and longer repayment terms, and HELOCs let you borrow at any time over a certain period of time, which can be especially helpful for long-term or larger cost projects.
What’s the difference between a home equity line of credit and a home improvement loan?
|Home equity line of credit (HELOC)||Home improvement loan|
Average home improvement project costs
Your home’s improvement costs can depend on where you live, the room you’re working on, and the extent of renovations you’re doing. However, according to HomeAdvisor, here are some estimated costs of common home improvement projects:
|Project||Average cost range||National average|
|Building a deck||$4,091 – $11,386||$6,919|
|Installing a roof||$5,619- $11,947||$6,626|
|Installing countertops||$1,853 – $4,317||$2,819|
|Installing a patio or pathway||$1,923 – $5,491||$2,937|
|Installing a furnace||$2,800 – $6,761||$3,881|
|Installing an AC unit||$3,800-$7,586||$5,233|
|Installing windows||$2,953 – $9,546||$4,745|
|Painting a home exterior||$5,400-$9,750||$2,575|
|Installing electrical wiring or panels||$554 – $2,297||$1,324|
|Installing a septic tank||$3,227 – $10,581||$6,892|
While there are ways you can make your improvements cheaper, like by buying cheaper materials or doing more work yourself vs. hiring a pro, there are also tradeoffs you’ll have to make such as having to re-do the project down the road because it didn’t hold up as well.
As you can see, if you’re renovating multiple rooms or have multiple projects, these costs can add up quickly. That’s why it’s important to compare personal loans for these home improvement projects to find the best one for you.
Is a home improvement loan a good idea?
A home improvement loan is only a good idea if:
- Your credit score is good enough to get you a low interest rate.
- You can afford the monthly payments and they fit into your budget.
- You’ve compared all of your options and found a personal loan is best.
- You don’t have time or the ability to save enough money for the projects without taking out financing.
- You have a plan for home renovations or projects and will use the funds wisely.
Pros and cons of home improvement loans
|Work can be started immediately and completed on schedule||Additional debt added to current home expenses|
|Monthly fixed payments are easier to budget than variable payments||Interest rates are high for bad credit borrowers|
|Interest rate is fixed||Home improvement loans come with origination fees and monthly fees|
|Home value will increase||Loan might not cover all costs|
Alternatives to home improvement loans
Home ownership gives the borrower additional options. Instead of applying for an unsecured personal loan or other type of loan that could come with a high interest rate, you can use one of the following options:
Depending on how much your home improvement projects are going to cost, you may be able to use a credit card to make the purchases. This may be the quickest type of funding unless you apply for a higher line of credit. You can also try applying for a card with an introductory 0% APR, so you won’t accrue interest for a few months. Keep in mind that you’ll have high interest charges on the remaining balance from month to month, so if you’re not able to pay the card off, you may end up paying much more over time.
Home improvement loans for bad credit
Individuals with bad credit (credit score under 670) will have difficulty getting a home improvement loan if the amount needed is $10,000 or above. Smaller loans are available, but interest rates will be high, and they might not provide enough funding to finish the home improvement project. A home equity loan or HELOC might be a better option.
Pros and cons of home improvement loans for bad credit
|Pay for your home improvement sooner||High interest rates and fees|
Taking out a personal loan for a home improvement project when you have bad credit might not be the best option for you. On the positive side, if you do it and pay it off, your credit score will improve.
Related Article: The Best Ways to Build Credit and Improve Your Score
How do I qualify for a home improvement loan?
- Check your credit score before applying
- Research lenders that specialize in home improvement loans as some may work with bad credit borrowers
- Home improvement loans are larger than the average personal loan, so a good credit score, usually at 670 for a loan of $10,000 or more, is essential for the borrower
- Try to improve your credit score
How to compare home improvement loan lenders?
A home improvement lender is a partner in your journey of home ownership, so you’ll need to know that you can trust them.
- Research established lenders and check their reviews
- Verify the legitimacy of lenders with the Better Business Bureau
- Compare interest rates, terms, and fees for lenders
How do I apply for a home improvement loan?
- Choose the amount you want to borrow
- Research multiple loans for home improvement lenders
- Fill out the application. Most lenders allow you to do this online
- Be prepared to provide a driver’s license or state ID, proof of income (paystubs, W2s and 1099s), verification of employment, and access to your credit report
- Approval for larger loans takes a few days
Commonly asked questions about personal loans
Yes, you can use home improvement loans for any home improvement project or renovation, including installing a pool.
Even if you have a mortgage, you can still get a home improvement loan. Just know that the amount of your mortgage and existing debt can affect your new loan’s interest rate and term. You can also use your mortgage and home’s equity to take out an HEL or HELOC instead of a personal loan, depending on which is best for your situation.
The best personal loan to get for home improvements is one that has a low interest rate with monthly payments you can afford. An unsecured personal loan may be better so you don’t risk losing your home if you can’t make the payments, or an HEL or HELOC may be better if you have enough equity in your home. A secured personal loan may have lower rates if you’re confident in your ability to repay it.
Personal home improvement loan terms can last from 12 to 84 months, though most home improvement loan terms are between two and five years, depending on the project. If you can, get preapproved for different loans to understand what term you’d qualify for and what the monthly payments would be.
For veterans wanting a home improvement loan, the best place to look is a credit union that caters specifically to veterans and military members, or a bank or online lender that has favorable terms. When comparing personal loans for veterans, consider possible discounts you’d be eligible for through the institution, compare interest rates, and be sure to check for other fees.