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How to Get a Home Improvement Loan: 5 Steps

If you need money for a property renovation project, consider a home improvement loan. For homeowners who don’t have the finances to pay out-of-pocket, loans provide financial flexibility for home improvement financing.

A home loan has multiple repayment plans, terms, conditions, and qualifications. But which types are available, and how do you select the best payment terms for a repair? 

Continue reading to discover everything you need to know about how to get a home improvement loan, including your options and the ways you can apply. 

What Is a Home Improvement Loan?

A home improvement loan is money homeowners can receive to finance house renovation projects, including property upgrades and repairs. A homeowner pays back the loan amount—plus any fees and accumulated interest—on a fixed schedule. 

A home improvement loan is a solid option because you can use it to increase your home’s value. What does this mean? Let’s say you decide to install a new deck in your backyard. While the up-front costs can be substantial, this exterior feature could make your property more attractive to prospective buyers once you decide to sell, earning you more money in the long run.

What is the average rate of a home improvement loan? The actual cost will depend on several factors, including your:

  • Annual income
  • Credit score
  • Debt-to-income ratio
  • Annual percentage rate (depends on the loan type)

The Types of Home Improvement Loans

Here are five types of loans you can use to fund renovation projects.


Personal Loan

A personal loan can be acquired for just about any project, including home renovations. Personal loans work like unsecured lines of credit, which means you don’t need to secure the loan with an asset, like a home or vehicle. Most lenders don’t even consider your home’s value during the approval process.

Instead, lenders will assess your credit score and annual income. Generally speaking, you’ll need a minimum credit score of 560 to 660 to acquire a personal loan.


Home Equity Loan

With a home equity loan, you use your home’s equity value and convert it into a loan for financing a renovation project. How much you borrow depends on the difference between your home’s market value and the mortgage balance. If you’ve determined that your property has a substantial amount of equity, this can be the best option.

Home equity loans carry fixed interest rates, making it easier for homeowners to make consistent payments. Repayment terms range anywhere between five to 30 years.


Home Equity Line of Credit (HELOC)

A HELOC is similar to a home equity loan in that you tap into your property’s equity. However, HELOCs have distribution limits. Your lender will determine a specific loan limit. Another difference is that you’re able to borrow money several times, providing you with the flexibility to address financial needs as they arise.


Cash-Out Refinance

With cash-out refinancing, you apply for a new mortgage and receive a new loan, which you can use to pay off the old one. You can use whatever cash is left over to fund home improvement projects. Cash-out refinancing typically  offers the lowest interest rates of all home improvement loans.


FHA 203 (k)

Also known as a rehab loan, an FHA 203 (k) type combines your mortgage and home renovation costs into a single loan. This can be a cost-effective choice to avoid the hassles of applying for separate loans. You can also use your loan to finance materials and labor associated with home improvement.

The Federal Housing Administration provides an FHA 203 (k), so these loans come with flexible  qualification terms.

How to Get a Home Improvement Loan in 2023

Home improvement loans can become incredibly expensive, so you’ll want to consider your options thoroughly. Let’s walk through the five steps to follow when applying for a home improvement loan.


Step 1: Assess Your Financial Situation

Examine your finances before applying for a loan. Determine how much of your debt you can allocate toward necessities like rent, food, childcare, credit card payments, and entertainment.

The key is to gain a comprehensive understanding of your budget so you can make informed decisions on acquiring a loan that best serves your financial needs.


Step 2: Determine Your Renovation Needs

Different renovation projects require different materials and labor, so the amount you spend depends on your specific repair needs. Evaluate what needs to be done, the type of contractors you’ll need to hire, and how much it will cost.

This will help you decide the size of loan to commit to.


Step 3: Determine the Type of Loan Needed

Spend time thoroughly looking over the financial benefits and drawbacks of each loan. For example, if your home lacks high equity, you may want to consider a personal loan since your home’s value won’t be taken into account. 

If you have high equity, choose a home equity loan, since your home’s equity will guarantee the loan, and the amount you pay toward the loan’s principal will rebuild the equity you borrowed against. Finally, if you want to refinance your mortgage while paying off home improvement expenses, go with a cash-out refinancing loan.


Step 4: Check Lender Requirements

Establish what your lender requires. If your credit score is high, you might qualify for repayment options with low interest rates. Other lenders may focus on employment, home equity, and residency. 


Step 5: Gather Required Documents

Your lender should inform you of the required paperwork you need. Keep in mind that if you’re applying for a loan designated for home renovations, you may be required to provide a contractor agreement.

Here are some standard items you should obtain:

  • Government-issued ID
  • Social Security number
  • Income documentation (e.g., pay stubs)
  • Employer contact information
  • Proof of residency

Can I Get a Home Improvement Loan with Bad Credit?

One question people often ask is:  Can I get a home improvement loan with bad credit? 

Yes, you can. If you have bad credit, you may still be able to get a loan. However, some lenders charge administration fees to those with poor credit. You’re also likely to pay a higher interest rate.

Apply for a Home Improvement Loan through United Credit’s Lending Partner Network

Now that you know how to get a home improvement loan, it’s time to take that next step in taking control of your finances. United Credit can help. Our mission is to connect consumers and businesses with the right lenders who can provide quality financing options. 

If you need a home improvement loan, we know the right people. 

Contact us to get started on your application today.  

United Credit strives to keep the content shared on this blog accurate and up to date. You are urged to consult with business, financial, legal, tax and/or other advisors and/or medical providers with respect to any information presented. Opinions expressed here are the author’s alone and have not been approved or otherwise endorsed by any financial or medical institution. This content is intended for informational purposes only.

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