Home Improvement Financing
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How to Finance Home Improvement Expenses
Best Home Improvement Loans
Get funded from $2,000 - $100,000 towards home improvement upgrades and repairs and compare the best competitive rates from top personal lenders in just minutes.
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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
✔ 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.
✔ 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.
Marcus by Goldman Sachs
✔ 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.
✔ 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.
✔ 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.
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
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.
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.
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.
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.
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.
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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.
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Pros and cons of home improvement financing
- Make much-needed improvements or repairs
- Improve your quality of life
- Increase your home’s value
- If you pay it off religiously, it will be a positive mark on your credit history
- Home improvement loans may be costly
- You won’t always see an ROI, especially if the market changes suddenly
- Will cause your credit score to take a dip
- For renovations that add rooms to the home, it may be cheaper to move to a bigger home
Most common reasons for a home improvement loan
- Kitchen renovation
- Bathroom remodel
- Roof replacement
- Window replacement
- Improved heating/cooling
- To make major repairs
What credit score do I need to qualify for a home improvement loan?
Loans are available for many with less than perfect credit ratings but the loans with the best terms and interest rates tend to demand scores of 600 and above. That’s not to say you can’t get a loan with a lower score but you will have less choice and possibly end up paying more for the finance.
What is the average interest rate for a home improvement loan?
There is a wide range of interest rates for home improvement loans depending on the type of loan, current interest rates, amount, and length of the loan. At the moment you might expect to pay anywhere between 5% and 18% or more. That’s why you need to go into any loan agreement with your eyes open and get advice if you have any questions.
How do I qualify for a home improvement loan?
Again, this depends on individual circumstances and the sort of loan being applied for. Certainly for the best offers you should have a credit score of greater than 600 with a home equity or HELOC loan requiring 660-700. If you are seeking a personal loan you will probably need something more than 700.
Are home improvement loans tax deductible?
It depends. Loan interest on a home improvement loan can be deducted from your taxes. However, the loan must be secured by your primary residence and must be used to “significantly improve” the securing property.
Will a home improvement loan add value to my house?
Generally, any home improvement will add value to your house or at least make it easier to sell when the time comes. Whether you recover all the money used for the improvement depends on many factors, such as when you had it done and to what standard. For instance, a kitchen is a very personal thing. The one you choose may not be to a buyer’s taste though a good-looking kitchen will make the home more attractive. Don’t forget that the market can fluctuate.
What is the best home improvement loan?
The short answer is the one that best suits your needs and circumstances. The loan that’s right for a little renovation may not be perfect for replacing a roof. That’s why you need to understand the market fully before committing yourself.
How to apply for a home improvement loan
Many loan providers offer online forms for applying for loans. Make sure you have the required information at hand before you start and take your time. Don’t rush.
Use our comparison tables to compare loans to look for those with the best rates for your credit score. When you find one that looks like it will be a good fit for you, start their application process.
Compare the best home improvement financing rates
Now you know all there is to know about home improvement loans and rates, you can start your search for the right loan for you. Home improvements are always exciting and have the benefit of improving your home's value. Make sure you find one that suits your needs and affordability, and you’ll make a great decision.
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