9 Home Improvement Loan Options

home improvement loans

Making improvements, upgrades, and repairs to your home is a wise investment as they increase the value of your home.

There are several options to finance home improvements whether you’re buying a fixer-upper, or you want to make renovations to your current home.

We’re going to take a deeper look into the available home improvement loan options so you can deicide for yourself which one is best for you.

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Home Improvement Loan Options

No Equity Required Home Improvement Loans

This home improvement loan does require you to put up some of your home equity up as collateral. Sun Trust offers unsecured loans from $5,000 up to $100,000 to make home improvements and upgrades. Loan terms from 24-144 months.

Personal Loans

A personal loan is an unsecured loan that let’s you borrower between $1,000 tp $40,000 to use how you please. Interest rates vary widely depending on the loan terms and your credit score.

These are short-term loans that need to be repaid in 2-5 years in most cases. If you do not have enough equity to get a home equity loan or cash-out refinance then a personal loan is a good way to finance your home repairs and improvements.

Home improvement personal loans have a higher interest rate than equity refinancing. Your local bank or credit union may be able to offer you the best loan terms. But, check with multiple lenders, both local and online so you can compare loan offers and rates.

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Credit Cards

You can apply for low interest credit cards as a way to finance home improvements. However, this is not usually recommended. If there are large repairs you need to make to your home a credit card can help you have the repair done and let you pay it back over time.

Financing home improvements on a credit card is to be avoided due to higher rates on cards. You should try to get an equity loan or personal loan before using credit cards to fund home improvements.

Home Equity Loans and HELOC

If you have built up equity in your home you can use that equity as collateral to get a second mortgage. A home equity loan provides cash up to 80% of the loan-to-value ratio of your home. The money should be used for home improvements or repairs that will increase the value of the home.

Qualifying for a home equity loan requires a credit score of 680 or higher. They come with low interest rates and have a repayment term of 5-10 years.

A home equity line of credit (HELOC) is similar to a home equity loan but works like a credit card. A lender will provide a line of credit you can borrow from on an as needed basis.

Cash-Out Refinance

When you get a cash-out refinance you’re replacing your existing mortgage with a new loan. You can get up to 80% of the market value of your home.

As an example, If your home is worth $200,000 and your mortgage balance is $100,000. You can refinance your loan into a new one for up to $160,000, you would receive the additional $60,000 in cash and have a single loan payment.

Check Refinance Rates and Offers

FHA Title-1 Loan

The FHA has been insuring home loans for a long time. Now they have a home improvement loan, the FHA title-1 loan that allows borrowers to finance repairs and renovations. No home equity is required is borrowing less than $7,500.

Loan Limit – Up to $25,000 for single family homes. And $60,000 for multi-family homes with an average of $12,000 per unit.

No home equity needed – Loans below $7,500 are not secured by your home. $7,500 or higher will need to be secured by your home.

Long-term loans – Title-1 loans are long-term loans that be repaid over a 20 year period.

New Purchase Home Improvement Loans

There are a few different types of loans that provide financing for a home plus the costs of home improvements. These mortgage loans can only be used at the same time you purchase a new home.

FHA 203k Loans

A 203k loan is a type of FHA loan that gives the borrower up to $35,000 for repairs and renovations. The loan requirements are the same as an FHA loan but requires a higher credit score to qualify, typically 640.

203k Loan Benefits

  • 3.5% downpayment
  • Up to $35,000 to make repairs and renovations
  • Get financing for up to 6 months mortgage payments while construction is being done
  • Fixed-rate and adjustable-rate loan terms

FHA 203k loan infographic

Fannie and Freddie HomeStyle Mortgage

Fannie Mae and Freddie Mac are the two largest buyers of mortgage loans. The Homestyle loan program helps buyers purchase a home and finance up to $25,000 of home improvements.

FHA Energy Efficient Mortgage Program (EEM)

FHA loans are a type of mortgage loan that is insured by the U.S. Department of Housing and Urban Development. Homebuyers love these loans because they have low down payment and credit score requirements.

An FHA Energy Efficient Mortgage finances the cost of the home plus the costs of energy efficient improvements.

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