A home bathroom remodel runs $11,434 on average, according to Angi, an online home services marketplace. But it’s not always possible to pay for home improvement projects out of pocket — that’s why finding the best home improvement loans matters.
There are several different types of home improvement loans, and it’s important to choose the right one for your situation. Whether you’re tackling a small bathroom reno or a larger project like a kitchen remodel, choosing the right loan can help you make the home improvements you want without paying more than you need.
Compare home improvement loan rates
Methodology
Credible evaluated the best personal loan lenders for home improvements based on factors such as customer experience, minimum fixed rate, maximum loan amount, funding time, loan terms, fees, discounts, and whether cosigners are accepted. Credible’s team of experts gathered information from each lender’s website, customer service department, directly from our partners, and via email support. Each data point was verified by a third party to make sure it was accurate and up to date.
What are home improvement loans?
A home improvement loan is any type of loan you use to pay for home improvements, repairs, or remodels. Knowing the types of home improvement loans available can help you decide the best way to finance your project.
- Cash-out refinance: With this loan, you refinance your mortgage into a new, larger mortgage and take the difference in cash. A cash-out refinance can be a great way to access equity and lower your rate in a low-interest rate environment. But it usually won’t make sense unless you can refi into a lower rate than what you currently have.
Government loans and grants may also be available to low-income homeowners and the elderly to make needed repairs and improvements. Loans are available through the Department of Housing and Urban Development (HUD) — and may not have minimum equity requirements.
How do home improvement loans work?
Home improvement loans may work somewhat differently, depending on the type. But they have key terms in common that you should review when comparing loans and lenders:
- Unsecured vs. secured loans: Home improvement loans can be unsecured, meaning they don’t require collateral, or secured, meaning they do. A personal loan is typically unsecured, while home equity loans and HELOCs are secured by your home. This means that if you miss too many payments, the lender could foreclose on your home for the balance owed.
How to choose the best home improvement loan
As mentioned above, the best home improvement loans depend on your situation. So when choosing a loan, start by asking yourself the following:
- Do you have equity in your home to borrow against? If not, you may need to take out a personal loan.
- Are you comfortable using your home as collateral? If not, a personal loan may be a better option. Just recognize that personal loan interest rates are likely higher than those on home equity loans or HELOCs.
- Will you need a cosigner? If you emergency repairs or improvements and can’t afford to wait, a personal loan may be a better option.
| Tip: It’s helpful to compare rates and terms between lenders and even different types of loans. Get started by researching the best personal loans, home equity loans, and HELOCs. |
How to get a home improvement loan
When shopping around, you’ll notice some personal loan lenders allow you to get prequalified for a loan. This means they’ll estimate how much you can borrow — and at what interest rate — without impacting your credit. Prequalification isn’t an offer of credit.
Getting prequalified makes comparisons easier since you’ll have a better idea of the home improvement loan rates each lender may offer you. But first, make sure you meet a few basic requirements. In general, you’ll need:
- A good-enough credit score: A good, or in some cases, fair, credit score is necessary for loan approval. (A good FICO score is from 670 to 739, while a Equity in your home (for a home equity loan or HELOC): You’ll generally need at least 20% equity in your home to be eligible for a home equity loan or HELOC.
Once you review your options and decide on a lender, you can begin the application process. This generally proceeds online through the lender’s website. Keep in mind that once you officially apply for a loan, the lender will perform a hard credit inquiry, which could cause a temporary dip in your credit score. You’ll need to gather some information to support your application, including:
- Proof of income, like pay stubs, tax returns, or bank statements.
- Proof of residence, like utility bills.
- Housing payments.
- Outstanding debts.
And don’t forget to check the lender’s requirements to see what, if any, other information you’ll need.
FAQ
Can I get a home improvement loan with bad credit?
Yes, but you’ll have fewer options. Some lenders have low or even no minimum credit score requirements, though you’ll most likely face higher interest rates. Another option is to ask someone with good credit to cosign the loan. A cosigner shares the legal obligation to pay back the debt, and their credit will take a hit if you default on your loan or get behind on payments.
Is interest on a home improvement loan tax-deductible?
Maybe, depending on the type of loan and how you use it. In general, interest on personal loans isn’t tax-deductible. But interest on home equity loans and HELOCs may be tax-deductible if the funds are used to pay for significant improvements — generally, not routine repairs — to your home.
How long are home improvement loans?
Terms can last anywhere from one year to several decades, depending on the lender and type of loan you take out. Personal loans tend to have shorter terms of less than a decade, while home equity loans and HELOCs may have loan terms up to 30 years. Typically, there are a few different term options for you to choose from when applying for a home improvement loan.
Do I need collateral for a home improvement loan?
It depends on the type of home improvement loan you take out. require collateral. In the case of both home equity loans and HELOCs, your house serves as that collateral. On the other hand, unsecured loans, like most personal loans, don’t require collateral.