Before you tackle that next big renovation project, compare your loan options and interest rates.
How does a home improvement loan work?
Home improvement loans are meant to finance both minor and major updates to your home as well as necessary repairs. They are usually unsecured, though you may qualify for a secured loan that utilizes the equity in your house to fund your improvements.
Loan terms and interest rates will depend on the type of loan you apply for. Each has its own benefits and drawbacks, so it’s important to compare your options to find the best one to suit your budget and renovation plans.
What are my loan options?
When you’re looking for a home improvement loan, you have a few different options to choose from.
Personal loans are unsecured and can be used to finance nearly any type of renovation. When you apply, your lender will evaluate you based on your credit and financial information. But since you don’t have to provide any collateral, you don’t risk losing your home should you default.
Every lender has its own unique terms. Some may allow you to borrow up to $50,000 if you meet the necessary income and credit requirements. And between banks, credit unions and online lenders, there are plenty of options for you to compare.
Home equity loans
The amount you can borrow depends on the equity in your home. Lenders typically allow you to borrow anywhere from 80% to 90% of the value of your home minus the amount you have left to pay toward your mortgage.
Most lenders will give you a fixed rate that varies by your credit and income, and because your home is being used as collateral, you may be eligible for a lower rate than with a personal loan.
Which personal loan options I can compare?
How much do home improvements cost?
Home improvements can add up. Here’s around what you can expect to pay for these common home improvement expenses:
|Improvement||What it involves||Average cost|
|Adding square footage||Removing walls to expand the interior of a home or apartment.||$7,000 to $100,000|
|Basement remodeling||Putting down a floor, building walls, installing electric and plumbing lines.||$10,500 to $27,000|
|Plumbing||Hiring a plumber to replace old pipes or install new plumbing systems.||$300; $45 to $150/hour|
|Electric work||Hiring an electrician to redo part of your building’s wiring.||$350; $50 to $100/hour|
|Permits||Getting permission from your state and local authorities to start construction.||$900|
|Solar energy||Buying and installing solar panels||$25,000 to $35,000|
What are the benefits of taking out a home improvement loan?
- Carry out time-sensitive repairs. A home improvement loan lets you make repairs as soon as possible. Postponing repair work until you’ve saved the money can result in more damage, which can lead to more expensive repairs.
- Multiple loan options. No matter what type of home improvement you’re looking at, you have a range of loan options to choose from.
- Flexible terms. Not every lender offers the same thing. There are loans with shorter terms if you’re looking to flip your house and loans with longer terms for people who want to pay a little every month to modernize their house.
Are there any drawbacks to financing a home improvement?
- Taking on too much debt. If you apply for a loan you can’t afford to pay off, you run the risk of taking on debt you can’t manage. Make sure you budget for your repayments based on your financial situation before you apply.
- May not cover renovation budgets or schedule changes. If anything happens that affects the budget or schedule of your renovations, it could leave you without the money you need. If this might happen, a line of credit may be a better way to cover the unexpected.
How can I increase my home’s value?
Home improvements aren’t guaranteed to increase your home’s value, but that doesn’t mean they won’t make a difference. By comparing your loan options and choosing the right projects, you may be able to decide which renovations will get you the most bang for your buck.
- Request an estimate. Keeping costs down and getting good work done depends on your contractor. Have a few contracting companies come in to give you an estimate on the project’s costs. This will help determine your budget and get you the most value for work done.
- Plan for the future. A certain renovation may not add thousands of dollars to your home’s value. But if you’re planning on staying rather than selling, then it might be a worthwhile project to invest in.
- Consider the project. Different projects have different impacts on your home’s value. A necessary repair will likely keep the value the same while an upscale kitchen remodel may be the ticket to really increase your home’s value to future owners.
What to avoid when getting a home improvement loan
Home improvements often involve long and expensive processes, and you need to be financially prepared to cover it. Avoid unplanned or poorly considered renovation projects. They can cost thousands of dollars, and if you’re financing them with a home improvement loan, you may find yourself paying for work that adds no additional value to your home or daily life.
Similarly, avoid loans you can’t afford. Not only can missing payments or defaulting a loan impact your credit, you may risk losing your home if you’ve borrowed a home equity loan.
A home improvement loan could be the difference between a small renovation and a big one. When you’re looking to spruce up your home, bring it into the current decade or simply give yourself a nice space to relax in, consider your loan options to finance your next project.
However, remember that each loan has its own risks and may not always increase the selling value of your home. If you’re ready to get started, contact a local contractor and compare your loan options to be sure you’re getting a solid, cost-effective deal.
Frequently asked questions