Mon. Jan 25th, 2021

Home improvement loans help you finance renovations, updates and repairs that can add value and enjoyment to your home. Many homeowners are making alterations big and small and seeking home improvement financing for them as the coronavirus pandemic means needing space for work and school at home.

If you’re looking for a way to pay, you’ll first need to understand how home improvement loans work and compare financing options. This guide covers home improvement loan types, costs, qualification requirements and steps to choose the best home improvement loans.

If you’re ready to finance home improvements, start here. What you’ll learn:

  • What is a home improvement loan?
  • What type of home improvement loan is best?
  • How can you get a home improvement loan?
  • How can you choose the best home improvement lender?

What Are the Best Home Improvement Loans of 2020?

Best for bad credit

Carrington Mortgage Services makes a range of mortgages, including refinancing, available to borrowers nationwide. The company, which provides conventional and government-backed mortgages, has funded $22 billion in home loans since 2011.

Before You Apply

  • Mortgage types: ARMs, conventional, FHA, home equity loans and HELOCs, jumbo, refinance, USDA, and VA
  • Minimum FICO credit score: 500
  • Maximum loan amount: $2.5 million
  • Better Business Bureau rating: A+

Best Features

  • Accepts applicants with credit scores as low as 500

  • Offers conventional loans with down payments as low as 3%

See full profile

Best for no down payment

Alliant Credit Union is a not-for-profit financial cooperative that serves customers in all states except Maryland. Borrowers can take out conventional, jumbo, refinance and home equity loans.

Before You Apply

  • Mortgage types: conventional, first-time homebuyer, HELOCs and refinance
  • Minimum FICO credit score: 620
  • Maximum loan amount: $2.5 million
  • Better Business Bureau rating: A+

Best Features

  • Issues no down-payment mortgages for first-time homebuyers with excellent credit

  • Offers mortgages to borrowers with FICO credit scores as low as 620

  • Allows a debt-to-income ratio of up to 50% for some loan programs

See full profile

Best for low down payment

PNC Bank is one of the largest U.S. banks, serving more than 8 million customers in all 50 states. PNC offers most types of mortgages.

Before You Apply

  • Mortgage types: ARMs, conventional, FHA, first-time homebuyer program, home equity, HELOC, jumbo, refinance, USDA and VA
  • Minimum FICO credit score: undisclosed
  • Maximum loan amount: $5 million
  • Better Business Bureau rating: A+

Best Features

  • Offers multiple types of mortgages

  • Provides no or low down-payment mortgages

  • Supplies an online home ownership cost tool

See full profile

Best for large loan amounts

Bank of America serves roughly 66 million customers in all 50 states. The lender offers conventional, Federal Housing Administration, Department of Veterans Affairs and jumbo loans, as well as home equity lines of credit and mortgage refinancing.

Lender Highlights

  • Mortgage types: ARMs, conventional, FHA, first-time homebuyer program, home equity lines of credit, refinancing, VA
  • Minimum FICO credit score: 600
  • Maximum loan amount: $5 million
  • Better Business Bureau rating: A+

Best Features

  • Wide variety of mortgages

  • Annual percentage rate or closing cost discounts for qualifying Bank of America and Merrill Lynch clients

  • No closing costs and no annual, balance transfer and cash advance fees for HELOCs

See full profile

Best for conventional mortgage

Citizens Bank is a regional bank based in Providence, Rhode Island. It offers traditional banking services and products, including home purchase and refinance loans.

Highlights

  • Mortgage types: ARMs, conventional, home equity lines of credit, refinancing
  • Minimum FICO credit score: undisclosed
  • Maximum loan amount: $5 million
  • Better Business Bureau rating: undisclosed

Best for small loan amounts

Discover not only issues major credit cards but also makes loans to qualified borrowers. Choices include mortgage refinance or home equity loans that can be used to pay for home improvements, consolidate debts and cover other major expenses.

Lender Highlights

  • Mortgage types: home equity, refinancing
  • Minimum FICO credit score: 620
  • Maximum loan amount: $200,000
  • Better Business Bureau rating: A+

Best Features

  • No application or origination fees

  • Fixed monthly payments with several repayment term options

  • Convenient digital applications

See full profile

The Best Personal Loans for Home Improvement

Lender

Learn More

APR

Max. Loan Amount

Min. Credit Score

3.49% to 16.79% $100,000 660

6.18% to 35.99% $50,000 620

6.99% to 24.99% $35,000 660

6.99% to 28.99% $40,000 Not disclosed

7.16% to 29.99% $45,000 620

5.99% to 29.99% $50,000 640

5.99% to 18.64% $100,000 680

15.49% to 35.99% $25,000 585

7.99% to 35.97% $35,000 620

50% to 299% $5,000 Not disclosed

Best for low interest

LightStream is the national online consumer lending division of SunTrust Bank, which last year merged with BB&T to become Truist. LightStream’s online personal loans may allow you to borrow up to $100,000 and use the money for nearly any reason. Borrowers in every state can access these personal loans.

Before You Apply

  • Minimum FICO credit score: 660
  • Loan amounts: $5,000 to $100,000
  • Repayment terms: 24 to 144 months
  • Better Business Bureau rating: A+

Best Features

  • Offers more than 30 different loan uses

  • Approves loans of up to $100,000

  • Charges no origination, prepayment or late fees

See full profile

Best for customer service

Upstart is a national online lender that uses artificial intelligence to automate more than two-thirds of its lending decisions. Borrowers with fair to excellent credit can connect with investors willing to make loans of up to $50,000. Upstart has originated more than 500,000 loans since its founding in 2012.

Before You Apply

  • Minimum FICO credit score: 620
  • Loan amounts: $1,000 to $50,000
  • Repayment terms: 36 to 60 months
  • Better Business Bureau rating: A+

Best Features

  • Sometimes accepts applicants with fair or no credit history, using artificial intelligence to quantify risk

  • Offers loans for as little as $1,000

  • Provides a financial fitness dashboard that allows borrowers to modify payment dates and view credit score updates

See full profile

Best for low costs

Discover may be known for credit cards but also offers fixed-rate personal loans of up to $35,000 to borrowers in every state. The lender boasts no fees as long as you pay on time.

Before You Apply

  • Minimum FICO credit score: 660
  • Loan amounts: $2,500 to $35,000
  • Repayment terms: 36 to 84 months
  • Better Business Bureau rating: A+

Best Features

  • Offers customizable loan terms from 36 to 84 months

  • Provides borrowers free access to their FICO credit score

See full profile

Best for no origination fee

Marcus, the online consumer banking and lending arm of Wall Street giant Goldman Sachs, offers personal loans for up to $40,000. When you pay your loan on time and in full for at least 12 consecutive months, you can skip one payment. Interest will not accrue, and the lender will simply extend your loan for one month.

Before You Apply

  • Minimum FICO credit score: undisclosed
  • Loan amounts: $3,500 to $40,000
  • Repayment terms: 36 to 72 months
  • Better Business Bureau rating: A+

Best Features

  • Charges no fees on personal loans

  • Allows borrowers to skip one payment and accrue no interest after making at least 12 consecutive on-time payments

See full profile

Best for online service

Rocket Loans, a national online lender, makes personal loans of up to $45,000 for people with fair to excellent credit in all 50 states. Borrowers can use the loans to consolidate debts, to complete home improvements, to pay medical bills, and to fund business operations or other needs.

Before You Apply

  • Minimum FICO credit score: 620
  • Loan amounts: $2,000 to $45,000
  • Repayment terms: 36 to 60 months
  • Better Business Bureau rating: A+

Best Features

  • Provides same-day funding for loans of up to $25,000

  • Applies no prepayment penalties

  • Offers an online application process

See full profile

Best for bad credit

Best Egg is a national online lender offering personal loans starting at $2,000 for a variety of purposes. Loans can be funded in as little as one business day.

Lender Highlights

  • Minimum FICO credit score: 640
  • Loan amounts: $2,000 to $50,000
  • Repayment terms: 36 to 60 months
  • Better Business Bureau rating: A+

Best Features

  • Funds typically available in one to three business days

See full profile

Best for long loan terms

SoFi, short for Social Finance, makes personal loans of up to $100,000 to borrowers nationwide with very good to excellent credit. Known for offering loans with no fees, SoFi also provides student loans, student loan refinancing, home loans and small-business financing.

Lender Highlights

  • Minimum FICO credit score: 680
  • Loan amounts: $5,000 to $100,000
  • Repayment terms: 24 to 84 months
  • Better Business Bureau rating: A

Best Features

  • Loans with no fees, including late fees

  • Personal loans of up to $100,000

See full profile

Best for bad credit

LendingPoint, which specializes in loans for borrowers with fair credit, has offered online personal loans since 2014. The lender, operating in 49 states and the District of Columbia, provides loans as large as $25,000.

Lender Highlights

  • Minimum FICO credit score: 585
  • Loan amounts: $2,000 to $25,000
  • Repayment terms: 24 to 48 months
  • Better Business Bureau rating: A+

Best Features

  • Funds available just one day after approval

  • Some fair-credit borrowers eligible

See full profile

Best for small loan amounts

Upgrade is an online lender that offers personal loans and lines of credit nationwide. Borrowers can qualify for up to $35,000.

Lender Highlights

  • Minimum FICO credit score: 620
  • Loan amounts: $1,000 to $35,000
  • Repayment terms: 36 to 60 months
  • Better Business Bureau rating: A+

Best Features

  • Loans and lines of credit up to $35,000

  • Borrowers can complete loan process entirely online

See full profile

Best for customer service

Rise provides personal loans of up to $5,000 to borrowers in 33 states. The lender allows borrowers to pick their own repayment schedules and offers lower rates to borrowers who make on-time payments.

Lender Highlights

  • Minimum FICO credit score: undisclosed
  • Loan amounts: $500 to $5,000
  • Repayment terms: 36 to 60 months
  • Better Business Bureau rating: A+

Best Features

  • Borrowers can cancel loans and avoid fees with five-day guarantee

  • On-time payments earn lower annual percentage rate

See full profile

What Is a Home Improvement Loan?

A home improvement loan is financing you use to pay for home remodeling or repairs. When you get a home improvement loan, you use the loan funds to pay your contractor or buy supplies to complete the work, then pay the loan off over time. A home improvement loan is helpful if you don’t have cash to pay upfront for home improvement expenses.

Home equity loans and personal loans are the most common types of home improvement loans, but there are other options, such as cash-out refinancing. Banks, credit unions and online lenders may offer home improvement loans.

What Type of Home Improvement Loan Is Best?

The type of loan you choose will depend in large part on the scale of your home improvement project. For minor projects like painting, a short-term personal loan or even using a credit card might be the best option. For major projects like a roof or room addition, you may need to tap into your home’s equity by securing a home equity loan.

A home equity loan is a second mortgage offered by banks, credit unions and other lenders that is secured by the equity in your home. You have two options for a home equity loan: a traditional home equity loan or a home equity line of credit.

With a home equity loan, you repay the balance with equal monthly payments over a fixed term, just like your original mortgage. A HELOC works more like a credit card, allowing you to use your home equity line during the draw period and repay it over time. With either option, if you don’t repay the loan as agreed, your lender can foreclose on your home.

Another option for tapping equity is a cash-out refinance. However, instead of taking out a second mortgage as you would with a home equity loan, a cash-out refinance replaces your original mortgage. You’ll access your equity to get cash at closing, which you can use to make home improvements. Your refinanced home loan will have a new balance, payment, interest rate and repayment terms.

How much equity can you borrow?

Lenders usually limit total loans to 85% of the value of your home. This is the total loan-to-value ratio. However, some offer home equity loans that bring your total mortgaged value up to 100%.

As with any loan, the actual amount offered depends on additional factors, including your annual income and credit history.

Typically, home equity loans have fixed interest rates. The rates stay the same over the life of the loan, so your monthly payments never change.

HELOC interest rates are generally variable, which means they can go up or down according to a benchmark rate.

Home equity loan interest rates are typically slightly higher than mortgage rates. Your home improvement loan rate will depend on your home’s value, loan terms and amount, your credit history and score, income, and mortgage balance.

The annual percentage rate determines how much interest and additional costs, such as fees, you’ll pay to the lender over the life of the loan. The lower the home improvement loan rate, the less the loan will cost you overall, so search for the most competitive rate you can qualify for.

Fees can include closing costs, late fees and processing fees. Lenders may roll fees, closing costs and other costs, such as the origination fee, appraisal, title search and credit report fee, into the loan balance so you don’t have to pay these costs at closing.

Home Equity Loan Advantages

  • Lower interest rates. Home equity loans typically have much lower interest rates than unsecured loans, like an unsecured personal loan. There is less risk for the lender because your loan is secured by your home, and lower risk translates to lower interest rates.
  • Potentially larger loan amount. Home equity loans are generally limited to 85% of the value of your home minus what you still owe on your current mortgage. That may offer a larger maximum loan amount than a personal loan.
  • Tax deduction. You can deduct home improvement loan interest on a home equity loan if you’re making capital improvements to your home and your combined first and second mortgage debt does not exceed $750,000.

Home Equity Loan Disadvantages

  • Reduction of equity. When you draw on your home equity, it’s not equity anymore. Any amount that you borrow takes away from the equity you’ve built.
  • Risk of foreclosure. The lender can foreclose on your home if you fail to repay the loan, as your home improvement loan is secured by your home.
  • Long-term payments. Small or short-term home improvement projects aren’t well- suited for home equity loans. Using a long-term loan for a short-term expense may cost more in interest than a comparatively shorter-term personal loan.
  • Greater liability. You’ll have to pay off all mortgages, including your home equity loan, if you sell your home. While home renovations can increase your home’s value, they do not typically offer a 100% return on investment, so don’t count on being able to cover your home equity loan balance with a higher sales price.
  • Qualification. Home equity requirements for credit score, loan-to-value ratio and income can be strict. You might not need excellent credit, but good credit and enough equity in your property are typically required. You’re not likely to be approved for a home equity loan with fair credit or bad credit.

Using a personal loan for home improvement is like any unsecured loan. It’s not secured by your home, and your home improvement loan rate depends on your creditworthiness. Personal loans usually have a fixed interest rate, which means you can reliably schedule monthly payments into your budget.

The payback period on personal loans, typically two to five years, is shorter than on home equity loans, which can be up to 30 years.

Personal loans generally have loan amounts between $1,000 and $100,000.

Personal loan rates have an APR that includes interest rates, fees and other costs. Although personal loans are usually offered at fixed interest rates, some lenders offer variable-rate personal loans.

Personal loan rates may vary based on your credit and other factors, ranging from about 4% to 36%. Unsecured personal loans will typically have a higher interest rate than a home equity loan, but you might qualify for a lower interest rate if you have excellent credit and high income, which lessen the risk for the lender that you will repay the loan.

Application or origination fee. The application or origination fee is what you pay the lender to process the loan. It’s common for lenders to roll the origination fee into the loan balance rather than as a closing cost. Personal loan origination fees are usually between 1% and 6%.

Late fee. Expect a late fee if your payment is not on time. Lenders may offer a grace period of 10 to 15 days, after which a late fee applies. These fees typically range from $15 to 5% of the payment due.

Other fees. Some lenders charge additional fees, including returned payment or check processing fees.

  • You don’t need equity. Personal loans don’t draw on your home’s equity, so you can qualify even if you don’t have significant equity in your home. Mindy Jensen, real estate investment community manager at BiggerPockets, a real estate investing information and resource company, recommends taking out a personal loan if you don’t have significant equity in your home.
  • You can borrow smaller loan amounts. Personal loans are available for as little as $1,000, but home equity loans often have a minimum of at least $10,000.
  • Easier access to funding. While home equity loans require extensive documentation and closing, a personal loan is much simpler to obtain. You can apply online and may receive funds as soon as the next business day. And personal loan eligibility requirements may be looser than those of home equity loans.

Personal Loan Disadvantages

  • Higher interest rates. Typically, personal loans have higher interest rates than home equity loans, so you’ll pay more to borrow with a personal loan.
  • Shorter repayment periods. Personal loans usually have a repayment period of two to five years, while most home equity loans have repayment terms of up to 30 years. A shorter repayment period can be good for quickly paying off small amounts, but if you’re financing an expensive home improvement project on a short repayment period, the monthly payments may be too large for your budget.

How Can You Get a Home Improvement Loan?

Before you apply for a home improvement loan, determine the best home improvement loan options for you. Understand how much you need to borrow, the terms that work for you, and what you should do to find the best home improvement loan rates.

Know when to get a home improvement loan.

Apply for a home improvement loan well before you plan to start improvements, advises Charles Nilsen, executive vice president and national director of residential and personal lending at Boston Private wealth management company. He advises borrowers to start the process at least 30 days in advance to allow time for loan processing.

Determine how much you need.

Consider your home improvement project amount and leave room for error. Jensen cautions against taking out a property improvement loan that strains your finances to make cosmetic improvements. It isn’t worth going into foreclosure just to have a nicer kitchen, she says.

Determine your preferred loan term.

Consider your budget and how quickly you can pay off the loan. A long-term home equity loan makes sense for some long-term improvements, such as a room addition or new roof. But you shouldn’t get a 30-year loan for minor home renovations that will be replaced before you’re done paying for them, such as flooring.

Get prequalified with lenders to compare home improvement loan rates and terms. You can get prequalified with multiple lenders by sharing your Social Security number and other basic information, but you should verify they are only performing a soft credit check, as multiple hard inquiries can ding your credit rating.

Consider your eligibility.

Before you apply, consider how qualified you are for the loan. Your credit history and credit score, loan-to-value ratio and debt-to-income ratio are important factors in approval and qualifying for the best rates.

Home improvement lenders typically have minimum credit score requirements to be approved for a home improvement loan. Generally, you’ll need at least a 620 FICO credit score to be approved for a home improvement loan. Review your credit report to check for errors and work on paying down debt, especially on any delinquent accounts, before you apply for a home improvement loan.

How Can You Choose the Best Home Improvement Lender?

Compare home improvement lenders to find the loan that aligns with your needs. The best lender for you offers a loan that you can qualify for at the right amount with the lowest APR.

Focus on these four key areas when choosing a home improvement lender: eligibility requirements, loan amounts, APR and customer service.

Don’t waste time and money applying for a loan you won’t be approved for. Find out a lender’s minimum qualifications and get prequalified with the lenders most likely to grant you the loan.

All home equity loans have maximum loan-to-value amounts. Some have minimum and maximum loan amounts as well, regardless of your needs or your home’s equity. You don’t want to choose a lender that requires you to take out a loan larger than you need, and you don’t want to pick one that won’t lend you enough for your purposes.

Compare home improvement rates by getting prequalified rate quotes. Be sure you’re comparing apples to apples when you consider a loan’s APR and fees. A lender may have no closing costs and a higher APR that could cost you more in the long run than a lender with some closing costs that offers lower interest.

Advertising Disclosure: Some of the loan offers on this site are from companies
who are advertising clients of U.S. News. Advertising considerations may impact
where offers appear on the site but do not affect any editorial decisions,
such as which loan products we write about and how we evaluate them. This site
does not include all loan companies or all loan offers available in the marketplace.

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