Home Improvement Loans: How To Finance Renovations, Remodels, and Repairs

Shelly Bohorquez  | 

What Is a Home Improvement Loan?

Home improvement loans come in a few different shapes and forms, but their purpose is often the same: borrow money in order to make large-scale home renovations and improvements that are either needed or simply wanted to enjoy or to increase the value of your home. Regardless of your reasoning, home improvement loans are usually the best way to finance home improvements. This can mean anything from replacing a crumbling roof, adding a deck to your home, or big ticket expenses such as a new fridge or hot tub.

Best Ways to Finance Home Improvement

Home Equity Loans

Generally, the most common and preferred way to finance home improvements is by using your home equity, as these are often the most affordable types of loans for homeowners. As a homeowner, you’ve invested money into property and can use the difference between the value of your home and how much you still owe on your mortgage to secure a loan for a lower rate. If using a home equity loan is an option, it is probably the cheapest way for you to borrow money, and it can provide you with a large sum of money to use towards major renovations.

Home Equity Line of Credit or HELOC

If your home improvement project is more long-term, you may consider signing up for a home equity line of credit. Home equity lines of credit use the equity of your home to open a large line of credit that you can use as needed, which means you don’t need to take out a large loan that you’ll pay interest on if you’re not sure how much you’ll end up spending in total. HELOCs are often better suited for home improvement projects and may have more affordable rates depending on what you need the loan for.

Personal Loans for Home Improvement

If you’re concerned with using your home equity for a loan, or if you don’t have equity quite yet, you may have the option to take out an unsecured home improvement loan for your renovation expenses. However, it’s important to note that the credit requirements and interest rates for these types of loans may be higher, which may make personal loans a significantly more expensive option. This is a viable option if you don’t have time to wait to build equity on your home, but if the renovations you want to make can wait until you have equity, that may be the more fiscally responsible option.

How Do Home Improvement Loans Work?

Different home improvement loans have different policy guidelines, but generally home improvement loans are used to finance significant home improvements, upgrades or repairs. These types of home renovations can often be too expensive to pay for out-of-pocket, and borrowing money to increase the value of your home and improve your quality of life is a common desired investment of homeowners.

In the case of home equity loans and home equity lines of credit, the improvements you make may actually raise the value of the home, which could possibly offset the cost of the loan fees and interest. The potential of this outcome, as well as the low interest rates that come with home equity financing, make using home equity a popular option for home improvements financing, especially if you use the home improvement loan in preparation for a sale.

The loan fees and interest costs will depend on what type of loan you use, as well as how much you borrow and what the negotiated repayment terms are. Home equity loans will be the most affordable in the long run but if you are shopping around for home improvement loans with no equity, the more shopping you do, the better deal you will inevitably find. It is always cheaper to pay your loan off earlier by paying more than the monthly minimums in order to pay less in the interest that builds up throughout the life of the loan.

What Can Home Improvement Loans Pay For?

Home improvement loans can pay for just about any upgrades or renovations you’re hoping to make if your credit limit allows it. Any home renovation loan you borrow through your home equity is usually large enough to cover any upgrade you want to make. If you’re using a personal loan for home improvement or a personal line of credit, you may only have enough credit for small to medium sized renovation projects, as anything larger may take up too much of your credit limit and hurt your credit score.

Home improvement loans can pay for kitchen, bathroom and bedroom upgrades or remodels that are wanted in your home. They can be extra handy when you need something like a new roof, but can also be used to install green and energy efficient upgrades, such as solar panels, and to update your landscaping design to be more water efficient, such as with garden boxes and flowers rather than grass. You can also use home remodel loans to install more exterior upgrades like a new porch or patio, a pool or a new driveway. If you’ve considered renting out space in your home, you could use the loan to knock down a wall for a bonus room.

How To Get a Home Improvement Loan

Best Places To Get a Home Improvement Loan

When you’re shopping around for a home improvement loan, you should check at least a few different lenders before settling with any bank or credit union, as each one will have different pros and cons that may suit you better. Start by looking at federal programs and the federal housing administration that offer Title I Loans and Energy Efficient Loans to encourage the transition to green energy. You should also talk to your current bank, as they may offer deals to existing customers. Do some research online for the exact home improvements you’re hoping to make to see if there are specific loans for those renovations.

Home improvements and renovations are a good investment of time and money as they often add or restore value to your property. If you’re considering making home upgrades, do some research and talk to a few lenders about what the best home improvement loan will be for you.


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This post was updated September 17, 2018. It was originally published August 27, 2018.