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How To Get A Home Improvement Loan

5 minute read July 28, 2022

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Financing home improvements, or a full remodel, can be costly depending on the scope of your project. On average, homeowners can expect to pay between $18,000 and $78,000 for a home renovation.

If these numbers leave you feeling discouraged about creating your dream home, know you’re not alone and that options are available to help you make your dreams a reality. With a home improvement loan, you can finance these projects without having to put the money down upfront.

Wondering how you can get a home improvement loan? Let’s take a look at how this process works and the qualifications you’ll need to meet.

How Do Home Improvement Loans Work?

When you hear the term “home improvement loan,” this is typically referring to an unsecured personal loan intended to be used for home renovations that can increase your home’s value or appeal. However, a home improvement loan could also mean these financing options:

  • Cash-out refinance
  • Home equity loan
  • Home equity line of credit (HELOC)
  • FHA 203(k) rehab loan

The main difference between home improvement personal loans and other financing options, like a home equity loan, is that the latter may require you to put down some form of collateral on the loan (typically your home). Personal loans are typically unsecured, however, so collateral isn’t needed.

You can apply for home improvement loans through a bank, credit union or online loan provider. Depending on the type of loan you choose and your personal financial situation, your loan terms and the loan amount for each of these lenders will vary.

How To Qualify For A Home Improvement Loan

When qualifying for a home improvement loan, you’ll want to have a good understanding of your current financial situation. This includes your credit score, debt-to-income ratio and payment history.

The most important qualification is a strong credit score. Lenders look for borrowers with high credit scores to lower their risk of lending money to you. Most personal loans require a score of 600 – 700, though borrowers with poor credit scores may still be able to qualify if they fare better in payment history or another category.

If you’re applying for a home equity loan, HELOC or cash-out refinance, you’ll also need enough equity in your home to cover the cost of these renovations. Keep in mind that qualifications will be different for each lender.

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How To Get A Loan To Renovate Your Home

You’ll need to take a few steps when applying for a home improvement loan, though the process is fairly simple for qualified borrowers. Here are the steps in the application process:

1. Evaluate Your Finances

Before applying for a loan, you should have a good understanding of your financial situation. This includes reviewing your credit history for any errors that may be present and evaluating your budget to see how much you can afford to pay each month. If you can’t comfortably afford to take on another payment, then you may want to consider holding off on your home improvement projects until you can.

You can check your credit history and score through various online services. It’s important to check your credit history regularly to make sure there are no errors that could cause you to be denied for a loan.

2. Decide Which Type Of Home Improvement Loan Is Right For You

The best loan for your home improvement needs depends largely on your finances. For borrowers with a significant amount of equity in their home, it could make the most sense to choose a home equity or HELOC loan. However, a personal loan can have more flexible repayment and qualification terms.

A personal loan is also a great choice for borrowers who recently purchased a home and want to complete their home renovations before moving in. It’s best to evaluate the pros and cons of each loan in light of your needs to know which option is best for your project.

3. Compare Lenders

It’s important to compare lenders when applying for a loan so you can find a servicer that will provide the best interest rate and loan terms. If you’re using a home equity loan, HELOC or cash-out refinance, you may want to inquire with your current lender to see if they can offer you a competitive rate or discount for being a customer.

With any option, it’s best to inquire about the interest rates, fees, closing costs and repayment terms before choosing, so you can make sure you’re getting the best offer.

4. Apply For The Loan

Once you’ve chosen a lender and a type of loan, you’re ready to start your application process. Depending on what options you choose, the length of the process can take anywhere from a few minutes to a few months. For example, a personal loan lender could notify you immediately after applying, but a cash-out refinance requiring an appraisal and a lengthier underwriting process could take around 60 days to complete.

During the application process, you’ll need to supply your lender with a few documents that reveal your financial situation and personal identification. Preparing these documents ahead of time can help you speed up the process. Here are the documents you’ll likely need:

  • Proof of income
  • Tax documents
  • Bank statements
  • Social Security number
  • Other documents, depending on the loan you’re applying for and lender requirements

Once you submit your application, the lender will make a decision. If approved, you’ll receive the money within a few days or weeks. You can use this cash to pay for your home improvements and then start making your monthly payments on the loan.

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FAQs About How To Get A Home Improvement Loan

Still have questions about how to get a home improvement loan? You’re likely not alone. Here are some of the most frequently asked questions of borrowers who apply for a home improvement loan.

What type of loan is best for financing home improvements?

The answer to this question depends largely on your financial circumstances and whether you have enough equity in your home. Each financing option has pros and cons, so it’s important to research each option against your needs and the scope of your project before deciding.

How do I get a home improvement loan with bad credit?

If your credit score is lower than you’d like, you still have options you can utilize to finance renovations on your home. The USDA FHA 203(k) rehab loan helps borrowers in need finance necessary home improvements. You can also consider getting a loan co-signer who may have better odds of approval than you.

Final Thoughts: Getting A Home Improvement Loan Can Help You Finance Renovations

Home improvement loans can be a great way to finance your home improvement projects without having to pay the money upfront. When applying for a home improvement loan, be sure to compare your offers and have a good understanding of your personal financial situation.

If you’re ready to apply, start your home improvement loan application today with Rocket LoansSM.

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