Your home is a major investment that costs major bucks to upkeep. Where can you get that kinda cash? A home improvement loan could be a great option if you’re looking to make some major upgrades to your home.
You may also want to consider a home improvement loan if you’re planning to sell your home soon and want to increase its value. However, there are several things to think about before taking out a home loan, so do your research first. Keep the following points in mind while determining whether or not a home improvement loan is appropriate for you.
What Is a Home Improvement Loan?
A home improvement loan is a form of financing that funds repair or renovation projects on your property. Home improvement loans are available for a wide range of projects, from makeovers to large rebuilds.
The two most common types of home improvement loans are unsecured and secured. To get secured home improvement loans you need to put up collateral, such as your home equity or the value of your property. Unsecured home improvement loans are not backed by any collateral and tend to have higher interest rates than secured loans.
Types of Home Improvement Loans
Under the umbrella of secured and unsecured loans, you’ll find several types of home improvement loans available. Each with its own set of pros and cons, which we’ll outline below.
Home Equity Loans
A home equity loan is a type of secured loan, meaning it’s backed by your home equity—the value of your home minus any outstanding mortgages or liens. Home equity loans can serve a variety of purposes, including home improvements, debt consolidation, or major purchases.
Pros:
- Low-interest rates
- Long repayment terms
- Serves a variety of purposes
Cons:
- Requires equity in your home
- Interest may be tax-deductible
- If you default on the loan, you could lose your home
Personal Loans
A personal loan is an unsecured loan that you can use for a variety of purposes, including home improvements. Personal loans tend to have higher interest rates than other types of loans, but they can be easier to qualify for.
Pros:
- No collateral is necessary
- Flexible repayment terms
- Use for anything you need
Cons:
- Higher interest rates
- Shorter repayment terms
- May require good credit to qualify
Credit Cards
Credit cards are an option for small, immediate expenses, such as emergency home repairs. Because credit card interest rates are high, you should avoid using them. They should only be used if you’re confident you can repay the balance in full and on time.
Pros:
- No collateral is necessary
- Immediate access to funds
- Use for a variety of purposes
Cons:
- High-interest rates
- Requires monthly payments to avoid interest charges
- May have limited funds available
Home Improvement Grants
Home improvement grants are typically available from government agencies and non-profit organizations. They can serve any home-related purpose, including energy-efficient upgrades, repair or replacement of essential home systems, or cosmetic upgrades.
Pros:
- No repayment is necessary
- Serves a variety of purposes
- May have income restrictions
Cons:
- Limited funds available
- Highly competitive
- Tend to have strict eligibility requirements
HELOCs
A HELOC, or home equity line of credit, is a type of secured loan that uses your home equity as collateral. HELOCs can serve a variety of purposes, including home improvements, debt consolidation, or major purchases. The difference between a HELOC and a home improvement loan is that with a HELOC you can borrow against your equity as needed, up to your credit limit.
Pros:
- Low-interest rates
- Long repayment terms
- Revolving line of credit, not a one-time loan
Cons:
- Requires equity in your home
- Interest may not be tax-deductible
- If you default on the loan, you could lose your home
Energy-Efficient Mortgages (EEMs)
An energy-efficient mortgage is a type of loan that can help to finance energy-efficient upgrades to your home. EEMs can also serve any purpose along this line, including energy-efficient appliances, solar panel systems, and insulation upgrades.
Pros:
- May help you save money on utility bills
- May lead to a smaller carbon footprint
- May help you qualify for a larger loan
Cons:
- It may require an energy audit
- Interest rates may be higher than traditional loans
- The loan amount may be capped at a certain percentage of the home’s value
FHA Title I Property Improvement Loans
A Title I loan is a government-backed loan that can be used for home improvements, repairs, and renovations. Title I loans are available through banks, credit unions, and other lenders.
Pros:
- Fixed interest rates
- Long repayment terms
- No collateral
Cons:
- Loan limits apply
- It may require a down payment
- Includes origination fees
Reasons to Consider a Home Improvement Loan
Still not sure about using any of the above home improvement loans to finance your renovation project? Here are seven reasons why a home improvement loan might be the right choice for you.
1. Use the Money for Any Purpose
Perhaps the most appealing aspect of a home improvement loan is that you can use the money for any purpose. Whether you want to update your kitchen, add a pool, or make any other type of upgrade, you can do so without having to worry about how it will impact your mortgage.
Home improvement financing can also finance energy-efficient upgrades. This can save you money on your utility bills and make your home more environmentally friendly.
You can also finance emergency repairs with a home improvement loan. This can help you avoid the need for a more expensive loan, such as a personal loan or credit card, to pay for unexpected repairs.
2. Get a Fixed Interest Rate
Home improvement loans are a fiscally prudent way to finance major remodeling projects. Unlike credit cards or personal loans, home improvement loans come with fixed interest rates. This means that you’ll know exactly how much your monthly payments will be.
Fixed interest rates can make budgeting for your project much easier. The interest you pay on a home improvement loan may even be tax-deductible. This can save you money come tax time.
And because home improvement loans are for a specific purpose, lenders are often willing to offer lower interest rates than you would get with a credit card or personal loan. This can save you money over the life of your loan.
3. Get a Loan That Fits Your Budget
When it comes to home improvement loans, there’s no one-size-fits-all solution. You can choose from a variety of different loan amounts, depending on your needs and budget. That way, you only have to borrow as much money as you need, which can help keep your payments affordable.
With many lenders offering home improvement loans, you’re sure to find one that meets your needs. So whether you’re looking to finance a small project or a major renovation, there’s a home improvement loan that’s right for you.
4. Get the Money You Need Quickly
Home improvement loans get quick approval, so you can start projects right away. This is especially helpful if you’re trying to complete a project before putting your home on the market. Home improvement projects that are already underway are also fundable with a home improvement loan.
5. Potentially Increase The Value of Your Home
If you’re planning to sell your home, making some upgrades can increase its value. This could help you recoup the cost of your home loan and more when you sell. Some simple upgrades that can add value to your home include painting the walls, installing new flooring, and replacing old fixtures.
You may also want to consider renovating your kitchen or bathroom, as these are often the selling points of a home. Of course, any major renovations should be done with care, as you don’t want to overspend and end up losing money on your investment. Ultimately, though, a few strategic upgrades can go a long way in increasing the value of your home.
6. You Don't Have to Use Your Home as Collateral
There are unsecured home improvement loans available, meaning you don’t have to put your home up as collateral. A home improvement loan can also be an unsecured personal loan, which means if you default on the payments, your home will not be at risk. This can give you peace of mind knowing that your home is not at risk.
This leaves the equity in your home free for other necessities. If you have equity in your home, you can use it as collateral for other loans. This can give you access to additional funds if you need them.
7. Choose the Repayment Term that Works Best for You
Home improvement loans are generally repaid over a shorter period than standard mortgages, so you may receive the cash you require without taking on long-term debt. You can choose the repayment term that works best for you, so you’re not stuck making monthly payments for longer than you want.
If you’re a veteran or active-duty military member, you may have access to a government-backed home renovation loan. These loans often come with favorable terms, so it’s worth checking into if you’re eligible.
Get Your Money on Your Terms
There are many reasons to consider a home improvement loan. Getting a home improvement loan can help you save money on your taxes, get a lower interest rate, finance a home improvement project, and more. So if you’re considering a home renovation loan, be sure to consider all of the benefits before making a decision.
Whether you’re looking to save money on your monthly payments or you want to make some upgrades to your home, a home improvement loan can be a good option. Talk to Loanz about the best way to finance your next home improvement project. Apply now and get your funds in a matter of minutes.
