You want to make home improvements, and you aren’t alone! Millions of Americans want to renovate their homes to make them more livable and increase their value. Unless you have the cash to pay for tens of thousands in upgrades, chances are you need to get a loan to pay for your home repairs. Fortunately, there are many excellent home improvement loan products available.
- Compare Affordable Home Improvement Financing from Top Lenders
- Finance Home Improvements for Increased Equity and Wealth
Financing a home project requires careful planning, and homeowners should evaluate all available home remodeling finance options before making a commitment. Below, learn about the best home improvement finance options. Ready to apply for a home improvement financing? Our RefiGuide lenders can help you find many high-quality home renovation loans.
7 Best Home Improvement Financing Products This Year
Without a doubt, one of the most popular home renovation options is to do home improvements with home equity.
American homeowners have trillions in equity in their homes after the home value increases after the Pandemic.
Some of your best home improvement loan options for remodeling and rehabilitation are as follows.
Generally, you can get an 8% or 10% rate on many home equity products in 2024, which is usually lower than credit cards and other unsecured home improvement loans.
Lets start with the popular home improvement loan products because so many people are renovating and remodeling with home equity.
1. Home Equity Loan
A home equity loan is a popular second mortgage for making home improvements and it features a fixed interest rate and a fixed monthly payment. With good credit scores, most lenders are approving home equity loans allow you to pull 80% or 85% of your home’s value out, minus what you owe on the first mortgage.
Many people who know how much a specific project like installing a swimming pool will choose a home equity loan programs for home renovations because it is a fixed term, fixed rate product that gives them one large lump sum of cash. This 2nd mortgage loan is often best for those who like the peace of mind having a guaranteed monthly payment and a definite loan end date. Compare interest rates and home equity loan costs, before signing the closing documents.
2. Home Equity Line of Credit
A HELOC is a line of credit based on the equity in your home. This type of home equity financing carries variable interest rate during the draw period. You can borrow 80% or 85% of the home’s value, too. Most HELOC loans feature an interest only payment during the 10-year draw period, and principal is also paid after the draw period is over. You may prefer a HELOC for home improvement financing if you have several house projects, renovations and construction you want to do over a few months or years. You only pay interest on the money you pull out of the HELOC loan. It may offer lower monthly payments than home equity loans initially, but the payment can rise with market rates.
The RefGuide will help you prequalify with multiple lenders to secure the best terms when exploring different loan options for financing your next home improvement project. Check today’s HELOC interest rates.
Be aware that with all home improvement loan products, you are taking on more debt that is secured by the home. If you default on your loan, you could lose the house. You may like doing a HELOC if you are comfortable with a loan with a lower payment but that could go higher. Make sure that you have sufficient income to cover the HELOC payment if the interest rate goes up. Check the HELOC credit requirements as they have changed.
3. Cash-Out Refinance
Another equity option is a cash-out refinance that replaces your first mortgage with a new one, but with a higher balance. You take the extra amount in cash for your home improvements. A cash-out refinance may be a good choice if your current rate is higher than market rates.
However, cash-out refinances have declined in popularity in the last several years as markets are seeing higher inflation and rates. Many people have rates at 3% or lower they locked in before or during the Pandemic, so refinancing may not make sense. In 2024, many people have lower rates than market rates so they are choosing to get home equity loans instead.
Many borrowers overlook cash-out home improvement loans as their primary mortgage, but sometimes it makes sense financially. However, you should consider a cash-out refinance to fund your home renovations if you have, say, an 8% mortgage because you could probably get a 6.5% or so rate in May 2024.
4. Personal Home Improvement Loan
Another popular loan option, if you don’t want to touch your equity, is a personal home improvement loan. This is an unsecured personal loan that provides cash for home improvement. The loan size and rate are determined by your personal credit score. So, you should have a good credit score to get the best rates. In 2024, you might get a personal loan with a 6-8% rate if you have superb credit. A benefit of personal loans is, if you have good credit scores, the loan is approved quickly. You could get cash within 24 or 72 hours, once approved. If you have excellent credit, you may even be eligible for the zero interest home improvement loans.
Some unsecured personal loans are specifically called home improvement loans. These personal loan rates range between 7% and 36% in 2024, so your interest rate depends on your personal credit. Most online personal loan lenders are advertising rates in the 10% to 20% range for credit scores ranging from 700 to 800 fico scores.
5. 203K Loans
There are a variety of government loans that may be used for home improvements. One of them is the 203k FHA loan, which is backed by the US government. The 203K programs offers low interest rate financing for home improvements, construction and rehabilitation. This FHA home improvement loan is offered by FHA-approved lenders with backing from the US government. You do not need excellent credit to get a 203k loan and competitive mortgage rates are available. This program requires an FHA mortgage and you may qualify for up to $35,000 in home improvements.
Another government loan to consider is the Title I Property Improvement Loan Program. This is a loan from a private lender that is backed by the FHA. These home improvement loans are made to be used for any improvement or renovation to make the home more livable. However, the money cannot be used for a luxury item such as a pool or hot tub. The interest rates are affordable because they are backed by the US government.
6. Credit Card
Credit cards usually have higher rates and aren’t ideal for expensive home renovations. However, there are cases where using a credit card can make sense. If you have good credit, you may qualify for a zero-interest credit card that has no interest for at least a year. This can be a good financing choice if you pay the loan off before the rate increases.
7. Cash is King
If you can afford to make home improvements without adding debt and credit risks you may save yourself some pain. Most homeowners do not have enough money saved to cover the home improvement projects they need completed. Planning ahead to finance your home project is crucial to avoid additional costs and future financial issues. Ideally, saving up for a specific project and using those funds is the best way to pay for a home upgrade. However, if this isn’t possible, the RefiGuide can help you find multiple lenders so you can apply to finance home improvements and more.
How Do You Choose the Best Home Improvement Loan?
Whether you’re looking to add a luxury pool and spa, renovate a recently purchased dream house or your home is due for some updating and upgrading, it’s important to ensure you have the right financial resources to undertake the project.
The RefiGuide can match you with the best home improvement lenders in the country but you need to figure out your goals and budget before committing to home improvement financing.
There are many loans to choose from for your home improvements.
How do you know which is best? Here are some tips:
- Do you have home equity? If you have a significant amount of equity in the property, taking out equity is usually the lowest-cost loan option. The loan is secured so the rate is lower than personal loans and credit cards. Select a home equity loan if you need cash all at once and want a fixed, but higher, rate than a HELOC. If you have several projects to do over time, consider a HELOC if you prefer a variable interest rate and a lower initial payment.
- Is the home a fixer upper that you are buying now? Consider an FHA 203k loan that builds your home improvements into one mortgage. Getting these loans is more complex than equity-based loans because the project must be overseen by FHA.
- Do you need funds fast? The best way to get funds in your hands immediately is a credit card or personal loan. People with excellent credit can get low rates so these unsecured personal loan offers can be solid options.
How to Compare Home Improvement Financing
Pre-qualify and compare offers from multiple lenders to find the best finance option for your home improvement project. Here are key features to consider when comparing home improvement loans:
Annual Percentage Rate, AKA, APR: The APR represent the total cost of the financing, including any fees or home improvement loan closing costs. If you have a high fico score and belong to a credit union, this could be a good place to start since the maximum APR at federal credit unions is 18%.
Monthly Payment: Even with a low interest rate, verify that the monthly payments are affordable and fit within your budget. Use a home improvement loan calculator to determine the loan amount, rate, and repayment term needed to achieve an affordable monthly payment.
Loan Amount: Many home improvement lenders have caps on loan amounts, often around $20,000 to $50,000. If you expect your project to cost more, you may need a secured home remodeling loan from a mortgage lender that offers larger loan amounts.
Term: A loan with a long repayment term may have lower monthly payments, but you will pay more interest over the life of the loan compared to one with a shorter term.
Home Improvement Financing vs Home Equity Loans
An unsecured home improvement loan is a good option if you don’t have enough equity in your home or prefer not to use it as collateral.
If you do have equity, you might secure a lower monthly payment with a home equity loan or line of credit. This type of financing typically requires a home appraisal, which can result in a longer funding time.
Home equity loans are disbursed in lump sums and have fixed interest rates, so your monthly payments remain constant. You repay this loan in monthly installments over a term ranging from 15 to 30 years. Home equity lines of credit and loans function similarly to personal loans but often come with lower interest rates and longer repayment terms which lead to lower monthly payments.
How Much Can You borrow with a Home Improvement Loan?
Most personal home improvement loan amounts range from $1,000 to $25,000. With good credit and income you can find unsecured loans up to $100,000.
Most home equity loan amounts range from $30,000 to $300,000. With excellent credit ratings and a low debt to income ratio, you can find HELOCs and fixed rate home improvement loans up to $500,000.
Summary on Home Improvement Financing
There are many great options for financing your home improvements. If you have good credit and plenty of equity, you have the most attractive options. Our loan advisors at Refiguide.org can help if you need a home equity loan, cash-out refinance or HELOC. Contact the RefiGuide today for more information and to apply for a home improvement loan from trusted lenders offering competitive interest rates.
About RefiGuide
Bryan Dornan is a financial journalist and currently serves as Chief Editor of RefiGuide.org. Bryan has founded several mortgage and marketing companies and has worked as a loan officer and mortgage broker in the industry for over 25 years and has a wealth of experience in providing mortgage clients with the highest level of service in the industry. Bryan's continual focus is to promote affordable home-ownership to consumers like you across the United States. He also writes for RealtyTimes, Patch, Buzzfeed, Medium and other national publications. Find him on Twitter, Muckrack, and Linkedin
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