Home improvement loans are personal loans that provide money to improve or renovate your home. Also called a home renovation loan, you can get a home improvement loan through a bank, credit union, or online lender.
Taking out a personal loan for home improvement is just one way to fund your home projects, along with a home equity line of credit (HELOC) and a home equity loan. But it’s essential to understand how they differ so you can choose the right loan for your home renovation.
For instance, personal loans typically have higher interest rates and shorter repayment terms. And unlike HELOCs and home equity loans, which use your house as collateral, personal loans for home improvement are unsecured, making them less risky — you won’t lose your home if you default.
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What is a home improvement loan? How do they work?
Home improvement loans are a financing option that allows you to renovate, repair, or upgrade your property. Your lender provides a lump sum of funding that you repay with interest over time.
You can use a home improvement loan for a range of purposes, such as the following:
- Major renovations
- Interior remodeling
- Exterior makeovers
- Updating fixtures or appliances
- Home or garage additions
- Landscaping
- Installing a pool
- Driveway repair
Types of home improvement loans
There are a few types of home improvement loans to choose from: unsecured, secured, and government-backed.
Unsecured personal loans
An unsecured personal loan isn’t backed by collateral like your home. Instead, lenders will approve you for a loan based on your credit history and income.
Personal loans for home improvement are disbursed in a lump sum, with the amount ranging from $500 to $100,000. The repayment period is usually shorter than other loan types, 1–7 years.
The interest rate will vary by lender and depends on your financial situation. Rates can range from 6.49% to 35.99%.[1]
Secured loans
Secured loans require collateral to insure the loan, making them less risky for lenders. In this case, your home would be the collateral. The most common secured home improvement loans are home equity loans and HELOCs.
A home equity loan is a lump-sum payment that typically comes with longer repayment terms (5–30 years) and lower interest rates. Rates can range from 5.49% to 10.47%, depending on the payoff timeline.[2]
A HELOC is a line of credit based on your home’s equity. You need 15–20% equity in your home to qualify and can borrow up to 85% of the home's value. So, if you have $200,000 equity in your home, you may be eligible for a HELOC of up to $170,000. Rates range from 4.99% to 12.25%.[3]
You typically have access to the funds for 5–10 years, during which you can borrow against the credit limit and make interest-only payments on what you borrow. Once the draw period ends, you’ll generally have 25–30 years to repay the loan plus interest.
Government-backed loans
The Department of Housing and Urban Development (HUD) offers several home improvement loans:
- HUD Title 1 property improvement loan: The renovations must substantially improve the property’s livability or utility. For any loan exceeding $7,500, you’ll need to use the home as collateral.
- FHA 203(k) loan: The 203(k) program allows buyers and homeowners to finance renovation costs directly into their FHA mortgage—up to $50,000 for limited repairs, or higher for standard 203(k) projects depending on FHA loan limits in your area.
- Home Equity Conversion Mortgage (HECM) for seniors: This type of loan is also known as a reverse mortgage and is for homeowners over age 62. Through an HECM, you can withdraw some of your home’s equity to use for maintenance or repairs.
- VA renovation loan: You can use this loan, also called a rehab or reno loan, to finance both the purchase of a fixer-upper and the completion of any necessary renovations.
How to apply for a home improvement loan
Before you apply for a home renovation loan, determine how much you actually need to borrow. You’ll want to borrow the smallest amount needed—and only what you can afford to pay back.
While the exact requirements will vary by lender, you’ll generally need the following to qualify for a home improvement loan:
- A credit score of 670 or above
- A debt-to-income (DTI) ratio of 36% or less
- Steady income
- A valid ID and proof of residence
Look for lenders that offer prequalification, a process that uses a soft credit check to see if you’re eligible and what rates and terms might be available. Shopping around can help you get the best rate for your home improvement loan. Try a mix of banks, online lenders, and credit unions.
Compare the offers to ensure you find the term, monthly payment, and total repayment that work for your budget. Once you find the winning combination, submit an application to the lender. This requires a hard credit check. If approved, you’ll sign the loan documents, and the funds will be deposited into your bank account.
Home improvement loans vs. alternatives
| Type of loan | Pros | Cons |
|---|---|---|
Home improvement loan |
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HELOC |
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Home equity loan |
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Other options for paying for home improvements and renovations
If you don’t qualify for home improvement loans, you still have other options for financing important repairs on your home.
- Focus on your finances. If the repairs aren’t urgent, saving money and working to boost your credit score can help you qualify for better terms and rates, lowering your monthly payment.
- Borrow money from family. You may be able to borrow money from family or friends. Just be sure to create and stick to a repayment plan.
- Sell your home as-is. If you’re making renovations to prepare for a home sale, consider selling the house as-is or offering concessions to the buyer instead.
- Get an FHA 203(k) loan. This type of loan is good for those with lower credit scores (500–580) and less savings for a down payment. You can combine the home’s purchase price and renovation costs into one mortgage.
- Try cash-out refinancing. This replaces your existing mortgage with a new, larger mortgage. You’ll pocket the difference and use it to fund home improvements.
Bottom line: Choose the home improvement loan that makes the most financial sense
The flexibility of home improvement loans lets you tackle various repairs and renovations that can make your property more valuable. But higher interest rates and shorter repayment terms typically mean you’ll have a steep monthly payment, so make sure the loan you choose fits into your budget and that the renovations will increase your home value enough to make the costs worth it.
If you’re considering home repairs ahead of selling the property, you might want to consult with a real estate agent first. They can help you determine which fixes are critical and which can wait — or be passed onto the buyer. Clever Real Estate is the resource we recommend for finding a great agent who can list your home for just 1.5%.