No matter what type of home you own, making improvements, renovations, and additions to your property is a great way to make it feel like yours while raising your home’s price. However, home improvement projects are not always cheap, and in fact can set you back quite a bit if you haven’t budgeted properly. In some cases, it might make sense to use home improvement loans, which can help you cover a gap in cash on hand so you can boost the value of your home and reap the dividends later. Read more about home improvement loans to see how they can help you.
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What is a Home Improvement Loan?
Home improvement loans are usually personal loans that are used to pay for renovations, remodeling, repairs, or additions to a home. There are three major types of home renovation loans:
- Personal loans, which are short term and come in smaller amounts
- A home equity loan which uses the value of your home as collateral for financing
- Home equity lines of credit, which give you flexible financing by using your home’s equity as collateral
Home Improvements With a Personal Loan
Home equity loans are tempting, as they give you access to a significant amount of money, but they’re also risky since you’re borrowing against your home’s value. On the other hand, personal loans, which are usually unsecured, don’t require any sort of collateral and reduce the risk you’ll lose your assets if you can’t pay your loan. This comes with a few downsides—such as slightly higher starting interest—but it also means you can borrow smaller, specific amounts, and pay off your debt in significantly shorter periods. More importantly, home renovation loans are usually easier to qualify for than home equity financing.
How Much Can You Borrow?
While loan amounts will vary from lender to lender, you can usually access as little as $1,000 through some lenders. Many companies will offer roughly a $5,000 to $50,000 range, though there are several lenders which provide up to $100,000 in financing for borrowers with prime credit scores and excellent repayment histories.
Annual Percentage Rate (APR) For Home Improvement Loans
It’s important to remember that home improvement loan rates may be somewhat higher, even at their most accessible terms, than home equity loans or lines of credit because they’re unsecured. Even so, you can still uncover excellent rates that will let you quickly and easily renovate or improve your home. Most lenders will offer base APRs that start as low as 4.99% (though the lower range varies from 4.99% to 6.99% based on lender) and extend as high as 35.99% in some cases. Your available rates will depend entirely on your credit and finances.
Home Improve Loan Fees
One of the standout features the best home improvement loans provide is that they have significantly fewer fees than their traditional and home equity-based counterparts. This is due to the simplified application process, and the more welcoming nature of personal loans. Many online lenders and even banks will forgo prepayment penalties—fees added if you pay your loan off early—meaning you can pay off your loan as soon as you’re able. Others may charge a small origination fee, although many also don’t include it. Overall, however, fees are a much smaller part of your total loan costs with home remodeling loans.
Advantages and Disadvantages
- Home improvement loans are unsecured, so you’re not risking your property when you borrow an amount for a home project. While this means slightly higher rates, it also means greater peace of mind.
- One of the biggest advantages home improvement loans offer is their flexibility and focus. As opposed to a home equity loan or line of credit which can tie you down for a significant amount and repayment period, personal loans are short term and give you a greater range of amounts available.
- If you’re looking to finance a significant home remodeling project that requires a sizeable investment, you may have access to better rates and higher amounts if you have excellent home equity.
- Unlike home equity loans, which can in some cases be deducted from your taxes in the right circumstances, you must account for personal loan repayments which are likely not deductible when you file your taxes.
Where Can I Get a Home Improvement Loan?
Another excellent reason to opt for home repair loans over home equity loans is their mass availability. Today, you can easily log in to any of the best home improvement loans providers online and be approved in as little as one day. Moreover, many major banks offer unsecured personal loans you can use for home improvements and renovation projects. You can explore the best home repair loans on the market by reading our expert reviews, or see what others are saying in our extensive user reviews.
Home Equity Loans
Home equity loans let you access the value of your property to leverage financing for your home improvement or remodel. Also known as a second mortgage, this is valuable if you’re looking for larger loan amounts, but there are some things to consider:
Things You Should Consider
- Fees: Home equity loans have fees and costs more akin to a mortgage, which can cost hundreds of dollars.
- Home Sale: Selling your home before your repayment term ends may mean that you must pay out any outstanding debt now.
- Property Risk: Because your home is collateral, there is a high risk that if you fall behind or fail to pay your loan, you’ll lose it.
Home Equity Lines of Credit (HELOCs)
Home equity lines of credit give you access to revolving credit using your home’s value as collateral. These financing products work more like credit cards, letting you access funds as needed instead of in a lump sum, giving you more flexibility.
Things You Should Consider
- Fees: these can include everything from appraisal costs to late fees and even origination fees, which can add up with revolving debt.
- Balloon payments: when your HELOC expires you’ll have to pay whatever you owe all at once, which can result in losing your home if you can’t afford it.
- Restrictions on withdrawals: some lenders require that you take out a minimum amount, which can be more than you need and force you to pay more.
In the end, a personal loan can help you access exactly the amount you need for your home renovation project and provide you with the most beneficial repayment conditions. More importantly, without having to risk your property to secure funding, you can rest easy knowing you’ll be able to enjoy the fruits of your home improvement labor.