Home Improvement Financing

At some point, all homes need a little tender loving care. Styles change, things wear out, paint gets scuffed, and you just know it’s time for a makeover. If that’s just a couple of cans of paint it’s not a problem but as soon as you start thinking of new floor coverings, furniture, lighting, and the rest, the game changes. And if you’re thinking of putting in a new kitchen, bathroom, or an addition - costs can escalate very quickly.

If you’re one of the few with a pile of savings available you can self-finance the project but this is not the case for the majority of homeowners. Either they want to keep their savings as an investment for the future or they simply don’t have the cash to splash. This is where home improvement loans can be the answer to the situation.

Compare top home improvement lenders

Lightstream

LightStream

✔ Funding: Borrow $5,000 - $100,000
✔ Minimum Credit Score: 660
✔ APR: 2.49% - 19.99%
✔ Loan term: 2 - 7 years
✔ Funding turnaround: as soon as same business day

LightStream offers up to $100k personal loans as soon as same business day without origination fees and easy to use mobile app.

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LendingPoint

LendingPoint

✔ Funding: Borrow $2,000 - $36,500
✔ Minimum Credit Score: 580
✔ APR: 9.99-35.99%
✔ Loan term: 2 - 4 years
✔ Funding turnaround: as fast as within 24 hours

With LendingPoint, borrowers with fair credit can obtain a loan between $2,000 - $36,500 and get funded within 24 hours. Origination fees may apply.

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Marcus

Marcus by Goldman Sachs

✔ Funding: Borrow $3,500 - $40,000
✔ Minimum Credit Score: 660
✔ APR: 6.99-19.99%
✔ Loan term: 3 - 6 years
✔ Funding turnaround: typically within one week

Marcus offers loans that are best for debt consolidation and has attractive customizable loan repayment options. While funding may take up to a week, there are no hidden fees and you may obtain competitive interest rates.

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Upgrade

Upgrade

✔ Funding: Borrow $1,000 - $50,000
✔ Minimum Credit Score: 660
✔ APR: 5.94% to 35.97%
✔ Loan term: 2 - 7 years
✔ Funding turnaround: as soon as next business day

Upgrade offers borrowers with fair credit scores to obtain loans up to $50k. Joint applications are allowed. Origination fees may apply.

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Avant

Avant

✔ Funding: Borrow $2,000 - $35,000
✔ Minimum Credit Score: 550
✔ APR: 9.95 - 35.95%
✔ Loan term: 2 - 5 years
✔ Funding turnaround: within 24 hours in most cases

With Avant personal loans, borrowers with fair to good credit scores can get access to super fast funding up to $35K. Best for debt consolidation.

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What is a home improvement loan?

A home improvement loan is a loan (usually a personal loan) taken out to pay for home improvements. While a loan may be called a home improvement loan, there are no loans you can take out (besides some government-backed schemes) that must be spent on home improvements.

How do home improvement loans work?

When you take out a home improvement loan, you apply for a new line of credit through one of the types of loans we’ll talk about below. When approved, the lender will send you the agreed amount of money (or open the line of credit) and then you can make purchases using those funds.

Types of home improvement loans

When seeking extra finance for a home improvement scheme there are several options to consider:

• Credit card
• Unsecured personal loan
• Home equity loan
• A home equity line of credit (HELOC)
• Cash-out refinance
• An FHA loan

Credit card

If you are not considering a major facelift or construction, say a new kitchen or roof, then a credit card may be the simplest and most flexible option. If you have a good credit score then getting a credit card is a quick solution and many have the benefit of offering 0% interest for an introductory period. Pay it off before the time runs out and the finance has cost you nothing.

But if you are looking for a loan with bigger numbers involved – and the average cost of a new kitchen is around $25,000 – then, especially if you are going to take some time to repay it, a credit card is not going to be the most effective answer.

Unsecured loan

An unsecured loan doesn’t require collateral so your home and possessions are not put at risk should you find any problems meeting the repayments. The normal term for an unsecured loan is 36 - 60 months with payments being made regularly (monthly is the norm). However, because of the unsecured nature, the lender will not offer the keenest interest rates.

Home equity loan

A home equity loan is a specific sort of secured loan whereby the loan is guaranteed by the amount of equity you have in your property. Often you can borrow up to 85% of the amount of equity you have so it suits people whose homes have risen in value or have paid off much of their mortgage.

Because the lender has the security of knowing that their money is safe, a home equity loan usually offers generous terms and that makes it one of the most affordable ways of financing home improvements.

HELOC

Providers of home equity line of credit, or HELOC, will usually offer you a loan of something around 60-85% of the current value of your home, though you don’t have to borrow the full amount.

The draw period, which is the time you can access the line of credit, is normally 10 years during which time you only have to pay the interest (some lenders also allow some repayment of the principal). When the draw period is over you are given anything up to 20 years to repay the full amount. The interest rate of a HELOC can vary so if you are worried about rising interest rates perhaps it is not the best solution for you.

Cash-out refinance

The biggest benefit of this form of finance is that it is available for those with less than perfect credit scores. It involves the homeowner changing their mortgage and turning some of the equity into cash for the home improvements. Like a home equity loan, the lender’s money is secure which often means less exacting qualification targets and competitive APRs.

FHA loans

The government’s Federal Housing Administration has a couple of loan programs that may be used for home improvements.

The FHA 203(k) improvement loan is specifically for home improvements and purchases and is specifically designed to help you pay for energy-efficient improvements that will help to lower your utility bills.

The FHA Title 1 loan is a fixed-rate loan designed for home improvements and repairs. For amounts under $7,500 you don’t need collateral; for anything more, your home becomes the guarantee.

Remember that the FHA doesn’t actually provide the money. You need to apply for the loan from an FHA-approved lender.

How much can I borrow with a home improvement loan?

The amount you can borrow will depend on the type of loan you apply for and the value of your home. The more equity you have and the better your credit history, the more lenders will be prepared to offer.

What type of loan is best for home improvements?

Which loan you choose depends on you, your financial situation, and the amount of money involved. Credit cards are great for low-cost short-term projects but you may want to look at lower-cost solutions for more involved renovations.

Other types of home improvement loans may take longer to organize but will be more cost-effective in the long term.