10 Best Home Improvement Loans 2023
So, your kitchen is dated. Your bathroom has carpet and is too small. You keep looking at the costs of home improvement projects, and it is daunting.
The average kitchen remodel costs between $12,500 to $35,000, and a complete overall with professional appliances can cost up to $65,000.
Where can you get that type of money?
If you are on a budget and you can’t possibly pay for those quoted costs but still want to do a remodel, your best bet is to take out a home improvement loan.
A home improvement loan will give you the funds to complete a kitchen or bath remodel.
But keep in mind that the term “home improvement loan” refers to pretty much any type of funding that is used to finance your reno.
So if you are taking out a home improvement loan, it’s really a personal loan.
And you have options besides going to the bank. You can also cover your project by taking out a home equity loan or a home equity line of credit.
If you have great credit and a good income, you’ll easily qualify for a loan.
But don’t feel rejected. Some loans allow borrowers with fair credit scores to qualify for a loan.
If you have a 640 FICO score or lower, you may get funding but will end up with high-interest rates because of your financial situation.
So we’ve put together a top ten list of the best home improvement loans by category to help you decide which loan is the most attractive to you and which loan is the most affordable to you.
We also give you tips on how to qualify for a loan.
If you do qualify, you are this close to finally remodeling your dated kitchen!
And if you do a good job tackling your home improvement projects, the value of your home will go up in cost.
The Best Home Improvement Loans
- LightStream: Best for Home Improvement Loans Overall
- Best Egg: Best Loans for Fair Credit Overall
- FreedomPlus: Best Home Improvement Loans for Both Bad and Great Credit
- LendingPoint: Best Loans for Bad Credit Overall and Low Income
- Discover: Best Home Equity Loans for Borrowing a High Amounts
- Bank of America: Best Home Equity Line of Credit for Home Improvement with Low Fees
- PennyMac: Best for Home Improvement Cash-out Refinancing Loans
- SoFi: Best for Home Improvement Loans with Unemployment Protection
- Prosper: Best Loans for Small Home Improvements
- Upstart: Best Home Improvement Loan for Lack of Credit History
LightStream: Best for Home Improvement Loans Overall
LightStream offers the best home improvement loans overall because of their low costs and their features.
The interest rate is determined by a number of factors such as loan purpose, amount, term, as well as the customer's credit profile and method of payment.
The lender won’t charge you additional fees such as origination, prepayment, or late fees.
And it’s an unsecured loan, which means you don’t need to offer collateral to get the loan.
Rates without autopay are 0.5 percentage points higher, and you must borrow at least $5,000.
You can borrow up to $100,000.
However, like most home renovation loans, you need to have good credit if you want to get a competitive rate.
Then the amount you borrow will have a low interest rate and a fixed rate.
- Origination fee: 0%
- Loan sizes: $5,000 - $100,000
- Term lengths: 2 to 12 years*
- Additional requirements: N/A
- Minimum credit score: Good
*Payment example: Monthly payments for a $25,000 loan at 12.69% APR with a term of 12 years would result in 144 monthly payments of $338.88.
LightStream Home Improvement Loans Pros & Cons
- No fees
- Lender is known for its low APRs
- Apply online in minutes
- Long-term payoff can make monthly payments more affordable
- No fees or penalties for paying the loan off early
- Approved loans can be dispersed same day or date of choosing within 90 days
- Competitive rates among online lenders
- Rate beat program will beat a competitor’s interest rate by one-tenth of a percentage point
- Your credit must be good to excellent
- No option to pre-qualify on its website
- Requires several years of credit history
- No option to change payment due date
- Does not offer direct payment to creditors with debt consolidation loans
- Offers limited customer contact channels and hours
Upstart: Best Home Improvement Loan for Lack of Credit History
You may think you are better off if you have no credit cards and no loans.
But lenders don’t just want to see your credit score. What they are also looking for is someone who has a lengthy credit history.
They want to see some type of credit history to see if you can be trusted, i.e. if you’ve always made payments on time and whether or not you pay more than the minimum on a credit card.
If you have little credit history, a lot of lenders won’t lend you a loan.
But with Upstart, borrowers who have limited credit histories can apply almost with certainty because the lender’s credit score requirement is low (580 and above) and its minimum gross income is only $12,000.
This gives borrowers more of a chance to get a loan.
There are also other notable features.
You can use your Upstart loan to refinance a loan from another lender, provided it is not an existing Upstart loan.
If you consolidate your credit card loans, Upstart offers direct payment to creditors.
Plus, fund loans can be had in just one business day.
- Loan Term: 3-5 years
- Loan amounts: $1,000 - $50,000
- Origination fee: 0% to 8%
- Loan amounts: $2,000-$40,000
- Loan terms: 36 or 60 months
- Minimum Credit Score: 580
Upstart Home Improvement Loans Pros & Cons
- Accepts borrowers new to credit
- Best to consolidate other debts
- Clearly discloses rates and terms on website
- Offers multiple customer contact channels
- Borrowers can change their monthly payment date an unlimited number of times through online portal
- Multiple ways to pay: pay via mailed check, phone, online, and with automatic payments
- No fees for paying off the loan early
- Borrowers can choose from only two repayment term options
- Charges origination fee
- No rate discount for autopayments
- Customer service is available seven days a week, but not 24/7
- Late payment fees
LendingPoint: Best Home Improvement Loans for Bad Credit Overall & Low Income
LendingPoint is the best home improvement loan for bad credit because the company only requires a credit score of 585.
So if you thought you couldn’t get a loan because of your score, then LendingPoint may be best for you because it has the lowest requirements on the market.
When deciding to lend you money, LendingPoint, like other loans, will take into account your annual income.
But don’t fret.
You only have to have an annual income of at least $25,000.
Other lenders will not touch you with that very low income, but LendingPoint will.
However, LendingPoint loans are expensive and have origination fees, but that’s to be expected when you have bad credit and an income that barely registers.
The ideal borrower is someone who needs a small loan quickly. Loans start at $2,000.
- Origination fee varies
- Loan amounts: $2,000 to $25,000.
- Term lengths: 24-60 months.
- Minimum Credit Score: 585
LendingPoint Home Improvement Loans Pros & Cons
- Funds received next business day
- No prepayment fees
- Has origination fees
- $30 monthly late fee
- No joint applicants
- No joint applicants
Discover: Best Home Equity Loans for Borrowing a High Amounts
Discover is a national bank most famous for its credit cards. But Discover also offers personal loans.
We chose Discover as the best home equity loan that allows you to borrow a lot, up to $200,000.
How it Works:
You can borrow starting at $35,000 and up to $200,000 against your home equity.
You get flexible loan terms: 10, 15, 20, or 30 years.
Best of all, unlike other home equity loans, you pay no fees.
Yep, you heard right. Here’s what you don’t have to pay for:
- Origination fees
- Application fees
- Home valuation fees
- Cash at closing
The most enticing thing is you don’t need cash at closing. So many borrowers qualify for a loan but fail to take into consideration the high closing fees.
Plus, you get competitive interest rates.
- Origination fee: N/A
- Loan amounts: $35,000 to $200,000.
- Term lengths: 10 to 30 years
- Minimum credit score: 620
Discover Home Equity Loans Pros & Cons
- Flexible loan terms
- No prepayment penalty if you pay off loan early
- Competitive interest rates
- Best rates only offered to those who have excellent credit
- You have to have at least 620 credit score to qualify for loan
- If you pay loan within 36 months, you may have to repay closing costs
- Loan approval, 1 to 2 weeks, a higher time than a personal loan
Best Egg: Best Home Improvement Loans for Fair Credit Overall
Best Egg offers personal loans for home improvement, but you can also take out a loan with this lender for debt consolidation, travel, and special occasions, to name a few.
Best Egg offers low-interest rates for those who have a credit score starting at 700 and higher.
But Best Egg also lends money to borrowers who have a fair credit score, with a minimum credit score of 640.
The bonus here is that Best Egg will work with you to provide you with the lowest APR it can offer to unattractive borrowers.
- Origination fees varies
- Loan sizes: $2,000 to $50,000
- Term lengths: 36 to 60 months
- Minimum credit score: 640
Best Egg Home Improvement Loans Pros & Cons
- Fixed APR means your monthly payment will be the same
- No pre-payment penalties
- BBB (Better Business Bureau: A+
- Around half of applicants will receive funds the day after applying
- 95% customer satisfaction rate
- You’ll face an origination fee
- Only those with at least 700 credit score and $100,000 and above income get the best rates
- High maximum APR rate
FreedomPlus: Best Home Improvement Loans for Both Bad and Great Credit
It doesn’t matter if you have a great credit score or a bad credit score.
You’ll be qualified for a loan with those ranges if you choose FreedomPlus as your lender.
FreedomPlus lends funds to those who have excellent credit and to those who have the minimum score requirement, which is 620.
But you still will be treated differently if you have a low credit score.
Those with high credit scores will most likely qualify for the minimum APR, which is one of the lowest rate on the market.
Meanwhile, those with bad credit will be able to secure a loan but must pay high interest rates each year.
- Origination fee varies
- Loan amounts: $7,500 to $50,000
- Term lengths: 36 to 60 months
- Minimum Credit Score: 620
FreedomPlus Home Improvement Loans Pros & Cons
- Fixed-rate personal loan
- Borrowing amount is great for debt consolidation or credit card refinancing
- Discounted rates for direct pay to creditors, co-borrowers and for those who have over $40K in retirement savings
- BBB rating: A+
- Low score qualifies for loan, but low income may be the deciding factor
- Origination fees varies
- Late payment fees
- No same-day payments. 2-3 business days payments
Bank of America: Best Home Equity Line of Credit for Home Improvement with Low Fees
Using your home equity to pay for home improvement projects that increase the value of your home is a smart move.
A HELOC (home equity line of credit) is a secured loan, meaning that the loan is backed by your home.
A HELOC allows you to borrow what you need and since it’s secured, in general you can qualify for lower interest rates rather than you would for an unsecured personal loan.
Bank of America is a good choice because it offers low or no fees. There are no annual fees, no closing costs, and no application fees.
Even more, you’ll save a lot on your loan if you qualify for their 1.375% discount on your interest rate.
The APR is low, so that’s good, but you have to qualify for the rate, which means your credit score has to be good to great and your debt should be low.
That’s also the norm for personal loans, so you shouldn’t be surprised that your finances need to be in tip-top shape.
The good thing is that you can convert all or some of your balance to a fixed-rate loan if you take on at least $5,000 and no more than 90% of the maximum line amount.
In addition, Bank of America gives you discounts.
You get 0.25% off your rate when you sign up for automatic billing.
You get up to 0.75% off when you make the first initial withdrawal.
There are no additional fees, even if you convert some of your funds to a fixed-rate option.
- Loan type offer: HELOC
- Origination fee: N/A
- Loan amounts: $15,000 or $25,000 and up to $1 million
- Repayment Terms: 10-year draw period / 20-year repayment period.
- Minimum credit score: 580
Bank of America Home Equity Loans Pros & Cons
- You can make large draws with your HELOC
- Discounts for existing customers (like having a checking account with BOA)
- Covers the entire closing cost fees or credit lines of up to $1 million
- Best rates reserved for BOA’s Preferred Rewards members
- Need to pay $450 and cost of closing fees if you close your account within three years
- The low APR is for those with excellent credit
- High minimum loan amount could be more than you need to borrow
PennyMac: Best for Home Improvement Cash-out Refinancing Loans with Renowned Online Presence
For the cash-out, you refinance your home for more than you owe on your existing home mortgage.
The cash-out will replace your existing mortgage with a new, larger loan and give you a new interest rate.
As a result, you get the difference between your old mortgage and the new loan.
PennyMac offers cash-out refinancing and is on our list for its simple approval process.
PennyMac is different from other cash-outs because you can apply online from anywhere, making the process of borrowing easy.
While PennyMac is fully online, you can also apply for a loan by phone.
Besides being easy to apply, PennyMac offers a “Better Rate Promise,” which means the lenders’ pricing is better than other lenders.
If you find a cheaper lender, you will get a $25- gift card.
And if you don’t close on time, PennyMac will grant you a $500 Visa gift card.
PennyMac Home Improvement Loans Pros & Cons
- First-time homebuyer program with a low down-payment requirement (as little as 3 percent down)
- Offers loan modification programs for eligible customers
- Refinancing is a good idea only if you can secure a lower interest rate than what you pay now
- Unlike other loans. cash-out requires you to pay for all upfront fees, including appraisals, origination fees, taxes, and closing cost fees.
- No brick-and-mortar locations
- Customer service call center hours limited
SoFi: Best for Home Improvement Loans with Unemployment Protection
SoFi is noted as one of the few personal loan lenders that allows you to borrow an unsecured loan of up to $100,000.
While some companies offer more—such as a $200,000 limit—SoFi may be a good choice because there are no fees with your loan.
But what makes SoFi stand out is its unemployment protection coverage.
If you lose your job and it’s not your fault, you can receive up to 12 months of forbearance.
So you can delay your monthly loan payments in three-month increments up to 12 months.
In addition, you get other extra benefits like one-on-one career coaching that will help you secure a job, as well as access to exclusive events, for example.
- Origination fee: none
- Loan amounts: $5,000 and up to $100,00.
- Repayment Terms: 24-84 months.
- Minimum credit score: 640
SoFi Home Improvement Pros & Cons
- Loan repayment can go up to seven years (84 months), which is rare
- Extra perks
- Fixed and variable rates
- No Fees
- Mandatory credit score of at least 670. This is higher than other lenders
- If you need to borrow just a few thousand dollars, you may want to look elsewhere
- The least amount you can borrow is $5,000
- Funds available within a week; other loans take only one day or two
Prosper: Best Home Improvement Loans for Small Home Improvements
If you need to only borrow a few thousand dollars for a small home improvement job, Prosper is the way to go.
The minimum you can borrow is just $2,000.
But beware that repayment terms are fixed at three or five years, so you’ll be taking on more debt in the long run when you’re borrowing just a little.
Still, Prosper is a good choice because it allows borrowers to take out a loan with a fair credit score (580-669).
And you can rest assured that your application won’t be thrown out.
If the lender finds that your score is too low, you can apply with a joint applicant if that person has better credit than you.
- Origination fee: which is deducted from the amount you borrow.
- Loan amounts: $2,000-$40,000
- Loan terms: 36 or 60 months
- Minimum credit score: 640
Prosper Home Improvement Loans Pros & Cons
- Prosper is one of the best-known personal loan lenders in the country
- Caters to a wide range of borrowers
- Joint application makes it easy to secure more affordable terms
- A second loan or repeat borrowers get rate discounts
- Late fees
- Origination fees
- Funds received longer than comparable loans
- High APR for all credit ranges; even with an excellent credit score, you may get stuck with a disheartening APR.
How We Decided
Making upgrades to your home can often be a wise investment, especially when the value of your home will go up in price and your home will look nicer.
But shopping for the best home improvement loan can be daunting.
There are many types of loans to choose from and they all have different qualifications or terms. We took into account the following to create our list of the best lenders.
Annual Percentage Rates
The lower the interest rate on your loan, the better. We chose lenders who offer low minimum and maximum rates across the spectrum of credit scores.
We looked at companies based on factors such as whether or not they charged for origination fees, application fees, and closing costs. Those with no fees were put higher up on our list.
Ultimately, we took a hard look at lenders and noted their requirements for borrowing funds.
In the process, we discovered that credit scores made a huge difference and that those who had good to great credit were able to easily secure a loan.
We've also compiled our list of lenders with a variety of credit score requirements so you have options no matter your financial situation.
We placed an emphasis on personal loans with a number of repayment lengths.
Not many lenders offer special features. So we looked at lenders that had unique features that made them stand out.
For example, there are lenders that will beat the price of another lender, will stick to the closing time, and, if not, will give you a gift card. And if you lose your job, some lenders will give you up to 12 months of forbearance.
What is a Home Improvement Loan?
A home improvement loan is a loan you take out from a lender to finance home improvements such as rehauling your kitchen, updating your bath, and many other things, such as if you need the money to consolidate all your credit cards.
The most used home improvement loan is a personal loan. Those who choose a personal loan have little equity to borrow from, and so an unsecured personal loan is the best way to finance a home improvement project.
But there are other ways to borrow. Besides a personal loan, there’s the home equity loan and the HELOC loan.
Additional funding can be had using a cash-out refinancing or borrowing up to your credit limit on a credit card.
Should I Finance My Home Renovation?
If you have enough money and know how much it costs to make a home improvement, then you should forgo borrowing a loan.
However, for a lot of people, this route isn’t always possible.
That’s why they take out a loan.
But you have to ask yourself if adding your monthly payment for your loan is feasible when you are also paying down your home mortgage and other financed projects.
If you do end up borrowing to remodel a kitchen or bath, the good thing is that you’ll increase the value of your home.
What are the Common Reasons to Use a Home Improvement Loan?
Some of the most common reasons to use a loan include:
- Kitchen remodels
- Deck or patio additions
- Bathroom remodels
- Roof replacements
- Home additions
- Flooring upgrades
- Window replacements
How to Get a Home Improvement Loan
The total loan amount you qualify for will depend on your credit history, your ability to repay, and your annual income.
Here are the ways to secure a loan.
Check Your Credit Score
You are entitled to a free report annually. If your score is 670 and above, you’ll get favorable terms.
If it’s lower than that, try waiting to improve your FICO score.
Read more about how to check your credit score.
Improve Your Credit Score
During this period, try paying off high credit card debt or unpaid debt, or debt from collection agencies.
When your credit score is better, determine how much your project will cost, which will determine how much you borrow.
But remember, the lender will ultimately decide on how much you can borrow, and that’s due to your score and your income.
Verify Your Income
Prepare to submit documentation for your salary, which is your W-2, pay stubs, and bank statements.
For a HEL or HELO, lenders need to see your debt-to-income ratio (DTI). This is the share of your salary you spend each month on high debts, including your home mortgage, car loans, and student loans.
Have You Borrowed a Loan Recently?
If you’ve borrowed a loan during the past three months, lenders may be hesitant to offer you a new loan because you’re already paying back the recent loan on top of your home mortgage and other high-end costs you incur each month.
How much savings do you have in your savings account and your investment accounts?
How Do You Pay Back a Home Improvement Loan?
Loans are paid back in installments. The most common way is monthly payments, but that depends on the size of the loan.
In general, it takes around three to five years to pay back your lender.
Keep in mind your funds remain the same during the entire loan provided that you make payments on time.
What are the Best Ways to Fund Your Home Improvement?
- Home improvement loan or home repair loan
- Home equity line of credit (HELOC)
- Home equity loan
- Cash-out refinance
Which Loan Should You Borrow?
All these loans have different types of features.
However, they all have two things in common.
First, taking out funds for home improvements allows you to start or continue your project, but you need to qualify for financing.
Second, the process to get a loan is fairly simple.
Below we’ll give you the lowdown on which loan makes the best sense for you.
What is a Home Equity Line of Credit (HELOC)?
A HELOC is revolving credit. You’re given a line of credit for a duration set by the HELOC, which is known as a “draw period.”
During the draw period—which is usually 10 to 15 years—you can take out the amount you need when you decide to and when it’s best for you.
As such, this loan is best for borrowers who need available funds over a period of time.
For example, if you use a HELOC to renovate your kitchen but can’t finish the project because you ran out of funds, you then can withdraw more money.
A HELOC is a secured loan that allows you to borrow money using your home as collateral.
However, you need to have at least 15% to 20% equity in your home.
If you do, a HELOC is a great choice, as rates currently range from 2.62% and up to 21%.
But if you have good credit, your rates may be as low as 3% to 5%.
Note that HELOC charges interest only on the funds you use.
The biggest risk of a HELOC is that because you put your home up as collateral, you may face foreclosure if you fail to make payments on time.
- Low-interest rates in comparison to credit cards.
- Best if you need to withdraw funds during different periods.
- Lower up-front costs in comparison to home equity loans.
- Interest charged only on the amount of money you use.
- Lenders may require minimum draws.
- Interest rates are not fixed and can adjust upward or downward.
- Lenders may charge a variety of fees, including annual fees, application fees, cancellation fees, early closure fees, and late payment fees.
- Late or missed payments can damage your credit or have your house repossessed by the lender.
What is a Home Equity Loan?
A home equity loan is a loan that’s secured by the equity in your home, just like a HELOC.
The amount you can borrow depends on how much equity you have, your financial situation, and other factors.
You receive a lump sum and typical repayments start at five years and can go up to 30 years in fixed monthly payments.
The home equity loan has a fixed interest rate.
Lenders let borrowers get funding up to 85% of your home’s equity.
That’s calculated by the value of your home minus the amount you still owe on your home mortgage.
However, to qualify you need to have at least 15 to 20% equity in your home, just like a HELOC.
And home equity loans—also called a “second mortgage”—are not subject to market fluctuations.
After you lock in your fixed interest rate, you pay the same monthly payment over the life of the loan.
So the major difference between a HEL and a HELO is that the HEL has a fixed interest rate loan and the HELO has an adjustable-rate interest loan.
- Closing is easy compared to mortgages. Still, you may need an appraisal and title work.
- The IRS may allow you to deduct the interest you pay on your home equity loan.
- Home equity loans offer lower interest rates and can be much cheaper.
- Payment in a lump sum is great if you need all the money upfront to complete a reno.
- Since you put up your house as collateral, missed payments can lead to your home being foreclosed or repossessed. just like a HELOC loan.
- Difficulty qualifying: you need great credit and a lot of equity to secure a loan.
What is a Home Improvement Loan?
Since lenders do not specifically have “home improvement loans,” your loan is actually a personal loan and you can use the money for anything.
Unlike the HELOC loan or the home equity loan, equity isn’t required to qualify for a loan.
Also, unlike the two, the personal loan is unsecured, meaning that your lender won’t put up your house for collateral to secure the funds.
Your home won’t be at risk if you somehow miss payments, unlike a HELOC or home equity loan.
If you qualify, the funds for your home improvement loan can be had in a much faster way, from one day to two business days.
HELOC and home equities take longer for you to receive funds.
The personal loan has fixed or adjustable rates.
But it has a higher interest rate than a HELOC or home equity loan.
Still, those who have good credit will likely get a favorable term rate.
And this personal loan is not just designed for those with long credit histories and high credit scores.
Most lenders will take you on even if you have a fair or poor credit score, but you will end up paying higher interest rates.
Keep in mind that the payback period is often two to five years and is thus not flexible.
Also, when searching for a personal loan, consider those lenders that have no fees.
If a lender has no origination, application, and home valuation fees, as well as no money needed for closing, you’re probably getting a good loan.
- Unsecured loan; no lien on your home required.
- Low-and no-fee loans available.
- Fast application process.
- Funds available quickly; possibly on the same business day.
- Good for emergency repairs.
- Loan rates driven by creditworthiness.
- Lower borrowing limits.
- Shorter loan repayment terms.
- Some have prepayment penalties.
- Loans often have expensive late fees.
- Higher APRs for those without good credit.
- Can’t borrow repeatedly against your equity like you would with a HELOC.
A cash-out refinancing refinances your home mortgage for more than what you owe and you take the difference out in cash.
However, just like a HELOC and a home equity loan, you need to use your home as collateral. So once again you should be mindful of making your payments on time to avoid foreclosure or repossession.
Since you’ll have a higher mortgage loan, a cash-out has higher interest rates.
For a cash-out, you can borrow between 80% to 90% of your home’s equity.
You’re not allowed to pull out 100% of your home’s equity.
For example, if your home value is $200,000 and your mortgage balance is $100,000, you have $100,000 of equity.
To be eligible for a cash-out refinancing, you need to have the following requirements:
A minimum credit score of 620.
Have debt-to-income (DTI) ratio below 50%.
Following the cash-out, you must have a minimum 20% equity in your house.
The best reason for a cash-out is that you can qualify for a lower interest rate on your new loan rather than sticking with your original mortgage loan rate, which is typically higher.
With a cash-out, it’s not a good idea to use your money on a new car or to go on a vacation, because you’ll have little to no return on your money.
But if you use your new loan on home improvement projects, you can rebuild the equity you’re taking out and the value of your house will be higher due to improvements.
- Lower interest rates in comparison to a HELOC or a home equity loan.
- If you purchased your house when mortgage rates were high, you can qualify for a new and lower interest rate today.
- Using your new loan to pay down high-interest credit cards can save you a lot of money in interest.
- Build your credit score if you use loan to pay off credit cards in full.
Since a cash-out requires you to put up your home for collateral, you may face foreclosure if you don’t pay your loan on time.
You have to pay closing costs, which are between 2% to 5% of your mortgage. For example, for a $200,000 loan, you’ll pay between $4,000 to $10,000 in closing costs.
If you borrow more than 80% of your home’s value, you’ll have to pay for private mortgage insurance (PMI).
Which are the Most Attractive Features on Home Loans?
For personal loans, you can use the funds for any purpose.
You don’t need to provide your home title since the loan is not a mortgage or a reverse mortgage and won’t put your home at risk.
For HELOCs, you get lower interest rates. If you’re doing your project over time and in steps, a HELOC allows you to withdraw funds at any time you need the money.
Home equity loans also offer low-interest rates and can be much cheaper than a HELOC and a personal loan because the loan is secured.
Best if you have little home equity.
What are Secured and Unsecured Loans?
When shopping for a loan, you must choose between a secured and an unsecured loan.
A HELOC, cash-out refi, or a home equity loan uses your house as collateral.
That’s why it’s called a “secured loan.”
When you have a secured loan, this gives your lender security as it lessens the level of risk.
The good thing about a secured loan is that since the lender takes on less risk, your interest rates are lower compared to an unsecured loan, or a home improvement/personal loan.
In addition, a secured loan may give you higher borrowing power.
The major difference between secured and unsecured is that the secured uses collateral while the unsecured does not.
A type of unsecured loan is, as suggested, a home improvement or personal loan.
There are no assets required with an unsecured loan, although of course, if you somehow default on it, there are still risks you incur that are determined by the lender.
If you don’t want to put your house at risk, then an unsecured loan will work for you.
While the interest rates will be slightly higher in comparison to a secured loan, they can still be favorable if you possess great to perfect credit.
Because an unsecured loan doesn’t involve collateral, lenders are stricter when you apply.
They’ll expect more from you.
Lenders want to see a great credit score and good income, as well as how much money you want to take out to better decide on your level of risk.
As such, borrowers who have blemishes in their finances may find it difficult to find a lender.
Are Home Improvement Loans Tax Deductible?
Only loans like HELOC and home equity loans are tax-deductible up to $375,000 and up to $750,000 for joint-filers.
But there are rules:
Your loan is secured by your home.
You make significant improvements to your house that increase the value of your home.
Repairs and routine maintenance are not eligible.
You can deduct interest and any fees you pay, but not money that goes toward your principal loan amount.
Personal loans don’t qualify; your loan can’t be unsecured.
How Do You Find the Best Home Improvement Loans?
The most important thing to do when trying to secure a home improvement loan is to compare and contrast different lenders to see what each offer and what each offer you need.
Then you should try to come up with how much you’ll need, which will dictate how much you borrow.
Then look at lenders who will qualify you for the funding you need.
Do they have a sufficient amount of funds that you can borrow?
No matter what, get prequalified for a loan from a lender. Since this is most likely a soft inquiry, your credit score won’t go down.
During the process of prequalifying, give lenders all the finances they may need to make a decision.
This means submitting credit scores, credit history, income, etc.
Look out for fees. The best lenders don’t charge fees, and that can be seen in some of the best loans we’ve selected.
Some fees to avoid are origination fees, late payment fees, prepayment penalties, closing cost fees, and other common loan costs.