Home Improvement Loans: Get the Funds You Need to Make Your Dream Home a Reality

Is your home in need of repairs or renovations? You might be inspired to create your dream home, but covering the costs can be tricky. If you need funds to make these improvements, a home improvement loan may be the answer.

This post will discuss everything you need to know about home improvement loans: what they are, how they work, and who is eligible. We'll also provide tips on getting the best rate on your loan. The information here is valuable to all home improvers, no matter which phase of the home improvement journey you are up to. Let's dive in! 

What is a Home Improvement Loan?

Home improvement loans are a type of loan specifically designed for funding home improvement projects. These projects can include anything from making cosmetic changes like painting or installing new fixtures to major renovations such as finishing a basement.

Home improvement loans usually have lower interest rates than the interest rates on credit cards or personal loans. This makes them a more attractive option for borrowers looking to finance a home improvement project.

Because the value of your home secures home improvement loans, they also typically come with longer repayment terms than unsecured loans. This gives you more time to repay the loan without interest accumulating.

Best Home Improvement Loans

LightStream

LightStream offers a loan product designed to cover all home improvement projects, large or small. They understand that every home improvement project is unique, and they offer a variety of loan terms and repayment options to fit your needs. 

Lightstream offers both fixed-rate loans with monthly payments and variable-rate loans with more flexible repayment terms.

Your funds will cover all expenses related to your home improvement project. You may utilize your LightStream funds for various purposes, including contractors, appliances, finishes, furniture, landscaping, and much more. 

Pros

  • No loan application fee and no origination fee.
  • No prepayment fee.
  • You can choose your own repayment plan.
  • Loan terms range from two to seven years. This flexibility makes LightStream an excellent choice for borrowers who need to finance a home improvement project.
  • LightStream offers loans with fixed interest rates, so you'll never have to worry about your payments going up if the market changes.
  • Offers loan amounts from $5,000 to $100,000, so no matter what size project you're undertaking, they have you covered.
  • Rates range from 4.99% – 16.99% APR w/ AutoPay.

Cons

  • Must have excellent credit to qualify.

Sofi

Sofi home improvement loans are a great way to finance your home renovations. The application process is quick and easy, and you can apply for a loan online in just a few minutes. Best of all, there are no origination fees or prepayment penalties, so you can save money by refinancing your loan later.

Sofi also offers a wide range of loan terms, so you can choose the repayment schedule that best suits your needs. So whether you're looking to finance a small home improvement project or a major renovation, Sofi home improvement loans are a great option.

Pros

  • The loan application process is entirely online and can be done in just a few minutes.
  • Quick review period on your loan application so you'll know very soon if you're approved.
  • After approval, you can choose how much money you want to borrow and have up to 7 years to pay it back.
  • A Sofi loan can help cover the costs of everything from a new roof to a kitchen remodel, or buying a smart refrigerator, replacing your blender, and so on.
  • Fixed personal loan rates range from 7.99% to 22.73% APR.

Cons

  • High-interest rates.
  • Not available for low-income earners.

Marcus

Marcus by Goldman Sachs offers home improvement loans of up to $40,000 with interest rates as low as 5.99%. Marcus loans can be used for various purposes, including renovations, repairs, and furnishings. Marcus also offers a “skip-a-payment” option for borrowers who may need some extra financial flexibility.

Pros

  • Marcus loans are available in all 50 states.
  • Quick loan processing and disbursement within a few days.
  • A good option for borrowers with good credit and who need a loan for a large home improvement project.
  • Low-interest rates.
  • Reputation for excellent customer service.

Cons

  • No cosigners or co-applicants are permitted.

Upgrade

Upgrade offers a unique type of home improvement loan that can be used for different projects like bathroom remodeling, kitchen renovation, purchasing new energy-efficient appliances, transforming your yard, and so on. 

Unlike a traditional home equity loan or line of credit, Upgrade's loans are unsecured, meaning they don't require any collateral. This makes them a great option for borrowers who may not have much equity in their home or don't want to tie up their house as collateral.

Upgrade also offers a line of credit products better suited for ongoing home improvement projects. Lines of credit typically have higher interest rates than loans. Still, they offer the flexibility to make smaller, more frequent payments over time.

Pros

  • Upgrade offers competitive interest rates.
  • Flexible repayment terms.
  • Upgrade can approve a loan within as little as two business days.
  • No prepayment fees.
  • Multiple loan options with fixed rates.
  • Budget-friendly loan terms.
  • Fast loan disbursement.
  • Get funds for as high as $50,000.
  • Fixed interest rate.
  • No minimum income requirement.
  • APR is from 6.95% to 35.97%.

Cons

  • Charges origination and late payment fees.

Home Improvement Loans vs. Equity Financing

When it comes to home improvement financing, there are two main options: Equity financing and Home equity loans. 

Equity financing involves taking out a loan against the value of your home. This option can be advantageous because it can provide you with a lower interest rate than other types of loans. However, equity financing also comes with some risks. For example, if you default on the loan, you could lose your home.

Home equity loans are another option for financing your home improvement projects. With a home equity loan, you borrow against the equity in your home- the value of your home minus any outstanding mortgages or liens. Home equity loans typically have lower interest rates than unsecured loans and may offer tax benefits. 

When deciding which option is best for you, consider the risks and benefits of each type of loan.

Tips For Comparing Home Improvement Loans

If you plan to do some home improvement work, you may consider taking out a loan to finance the project. Here are a few tips to help you compare home improvement loans and choose the best option for you.

Make sure you have a clear plan for how you will use the loan proceeds and how much the project will cost.

Think about how much money you need to borrow. Home improvement loans typically range from $5,000 to $100,000, so you'll need to decide how much you can afford to borrow. Remember, the bigger the loan, the more you'll ultimately owe in interest and fees.

Next, consider the repayment schedule. Home improvement loans can be either short-term or long-term, depending on the loan terms. Short-term loans typically have shorter repayment schedules and higher monthly payments. In comparison, long-term loans have longer repayment schedules and lower monthly payments. Choose the option that makes the most sense for your financial situation.

Think about the collateral you're willing to put up for the loan. Some home improvement loans require collateral, such as your home equity or a vehicle. Others don't require any collateral at all. Choose the loan that's right for you based on your circumstances.

Finally, compare fixed rates and loan terms before deciding on a loan; this will help ensure you get the best deal possible.

Steps to Getting a Home Improvement Loan

For many homeowners, a loan is the best way to finance a large renovation. Home improvement loans are available from various sources, including banks, credit unions, and online lenders. The loan application process will vary depending on the lender. Still, there are some general steps that all borrowers will need to follow.

The first step is gathering all the necessary documentation; this includes your most recent tax return, pay stubs, and bank statements.

The next step is scouting and researching available home improvement loans in your jurisdiction. You can access information online from sites like NerdwalletForbes, and Bankrate.

Once you've found a few loan options that fit your needs, you'll need to compare interest rates and terms. Pay attention to the fees and closing costs associated with each loan.

Then it's time to fill out a loan application. The borrower will need to provide personal information, such as their name, address, and Social Security number. They must also disclose their financial history, including their income, debts, and assets. Once the application is complete, the borrower will submit it to the lender for review.

The next step is to complete the loan agreement. First, the borrower will need to sign an agreement with the lender that outlines the loan terms, including the interest rate and repayment schedule. Once the loan agreement is in place, the borrower will typically have to undergo a credit check to ensure they can afford the loan repayments.

Once the loan is approved, the borrower will receive the funds and can begin their home improvement project. However, it is important to remember that all loans come with risks. Therefore, borrowers should carefully consider their options before taking out a loan and make sure they can make all payments on time.

Frequently Asked Questions (FAQs)

Are there income tax benefits to home improvement loans?

Possibly. If the improvements you make to your home increase its value, you may be able to deduct some of the interest on your loan come tax time. However, if the improvements are for personal use (e.g., a new pool or deck), the interest on your loan is not tax-deductible.

Please consult a tax professional for more information on deducting home improvement loan interest.

Why not use a credit card for my home improvement project?

Using a credit card for your home improvement project might be tempting because of the rewards points you could rack up. However, credit cards typically have much higher interest rates than home improvement loans, so you could pay significantly more in the long run if you use a credit card to finance your home improvement project.

Another downside of using a credit card is that you might max out your credit limit, which could hurt your credit score.

Will checking my interest rate affect my credit score?

No. Checking your interest rate will not affect your credit score. However, when you apply for a loan, the lender will do a hard credit pull, which could temporarily lower your credit score.

Comparing multiple offers from different lenders is the best way to ensure you get the lowest interest rate possible. And, when you shop around for a loan, be sure to compare the interest rates and the Annual Percentage Rates (APRs). The APR is the total cost of borrowing money, including any fees or other charges.

Can I use a home improvement loan to replace kitchen appliances?

Yes, you can use a home improvement loan to replace your kitchen appliances, like replacing your dishwasher or buying that coffeemaker you've always wanted in your home. However, before you do so, you should consider whether or not the appliances you want to replace are energy-efficient. Energy-efficient appliances can help you save money on utility bills, which may be a better option in the long run.

If you're unsure which appliances are energy-efficient, you can consult the ENERGY STAR website. ENERGY STAR is a government-sponsored program that helps consumers save money and protect the environment by identifying energy-efficient products.

When should I start shopping for a home improvement loan?

It's best to start shopping for a home improvement loan as soon as you know how much money you need to borrow. That way, you'll have time to compare offers from multiple lenders and choose the right loan.

Conclusion

If you're in the market for a home improvement loan, be sure to keep all of this information in mind. It can be helpful to start by comparing rates from different lenders and then narrowing down your choices based on the most important terms. Then, with a little bit of research, you should be able to find the perfect loan for your home improvement project!

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The article was produced and syndicated by Finance Quick Fix.

About the Author

Olu Ojo
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Olu is a passionate entrepreneur who loves to blog on his site- frenzhub about life-saving lifestyle habits, hacks, and travel. He lives in the Western part of Canada. Olu has two bachelor’s degrees in Veterinary Medicine and Applied Accounting with a CPA designation. He currently shuffles time between completing a Master of Business Administration degree education, Accounting professional practice, and Blogging. He has freelanced lifestyle write-ups and articles for many websites since 2010.