Getting a home improvement loan is no easy task and there are a lot of reasons why it can be a challenge For instance, It is usually difficult to see lenders offering terms with high-interest rates, or having low credit score requirements. In addition to these, there is also the issue of location as well as the mount of time it takes to disburse funds.
Thankfully, some lenders are dedicated to providing beneficial home improvement loans. In this article, we’ve curated a list of these type of best lenders that are perfect for acquiring home improvement loan. These lenders offer perks that defeat specific challenges you expect to face while taking on a loan. Read till the end as we provide you with options and ultimately solve your dilemma.
| Lender | Ad DisclosureHSH Rating (?) | LICENSED STATES | MIN CREDIT SCORE | ||
|---|---|---|---|---|---|
| Amerisave | Nationwide | 640 | Learn More | ||
| LoanDepot | Nationwide | 620 | Learn More | ||
| Rocket Mortgage | Nationwide | 620 | Learn More | ||
| Veterans United Home Loans | Nationwide | 620 | Learn More | ||
| Figure | Nationwide | 640 | Learn More |
Home Improvement Loan Reviews
Check out our quick review to make proper comparisons and identify the best lender for your specific home improvement needs.
Amerisave
Who is it suitable for?
Best for loan seekers with excellent home equity. Home improvement loans are provided through Cash-out Refinance.
Pros
- 3% down payment
- Allows you to get cash of up to 80% of home value
- Opens up a chance for renegotiating loan terms. With this, you can enjoy lower interest rates
- Fixed interest rates for the first 90 days
- Cash doesn’t have to be used for only home improvements. Cash-out refinances also cover debt consolidation and educational needs, among others
- Fast loan approval in just 3 minutes.
- Results of the approval process don’t have an impact on your credit
Cons
- Not available within New York
LoanDepot
Who is it suitable for?
Best for loan seekers who wish to spread loan draw and repayment timeline over a long period. Home improvement loans are provided through a Home Equity Line of Credit (HELOC).
Pros
- 2.5% down payment
- Draw up to 75% in initial funding
- Utilize HELOC for loan draws for up to 10 years
- Minimum 20-year repayment period
- Low minimum repayment of at least $100 monthly
- Close initial loan funding in as little as 7 days
Cons
- High minimum draw amount of $50,000. This is a disadvantage for individuals who only need to embark on a small home improvement project
- Variable HELOC rate, which is a disadvantage during periods of rising interest rates
RocketMortgage
Who is it suitable for?
Best for loan seekers with a low credit score and who would like multiple options for loan financing.
Pros
- FICO score requirement of as low as 580 through the FHA loan option. This is the lowest on our list.
- Multiple loan options for home improvement. These include personal loans, cash-out refinance, home equity loans, HELOCs, and FHA Rehab loans.
- Low minimum loan amount of just $2,000. This is an excellent option for engaging in little home improvement projects without accruing significant debt.
- Same-day approval
- Possible same-day funding with personal loan option
Cons
- FICO Score requirement of 650 for personal loan options
- Minimum loan amount of $5,000 for Ohio residents with personal loan option
- High minimum loan amount of $45,000 with home equity option
Veterans United Home Loans
Who is it suitable for?
Best option for loan seekers who are active-duty military service members, veterans, or eligible surviving spouses of these individuals.
Pros
- No down payment requirement
- No Private Mortgage Insurance (PMI) needed
- Comparatively low-interest rates
- Easy loan qualification
- Available cash-out refinance option of up to 90% of home value
- Free credit counseling service
Cons
- Borrowers must have military affiliation.
- Only 28 physical offices available nationwide
Figure
Who is it suitable for?
Best option for loan seekers who wish to utilize HELOC to fund their home improvement project.
Pros
- Low minimum line amount of just $15,000 Fast application within 5 minutes
- Quick funding within 5 days
- Flexible home equity loan repayment timeline between 5 to 30 years
- HELOC available for a second property
Cons
- Comparatively high credit score requirement of 640, which is the highest on our list
- HELOC not applicable to properties purchased within the previous 90 days of application
- Must immediately draw the full HELOC loan amount upfront. Origination fees are not included in this.
Options for Home Improvement Loans
Here are the most common options for financing your home improvement or renovation project.
- Home Equity Loans
- Home Equity Line of Credit (HELOC) Loans
- Cash-Out Refinance Loans
- Personal Loans
- FHA 203(k) Home Improvement Loans
- Fannie Mae HomeStyle Renovation Loans
- Freddie Mac CHOICERenovation Mortgages
Home Equity Loans
“Home equity” refers to the difference between the value of your home and how much you still owe on your mortgage. A home equity loan is usually a fixed-rate loan, and funds are provided to you in a one-time lump-sum payment. Lenders will generally allow you to borrow up to 80% or 85% of the value of your home (including your existing first mortgage).
To qualify for a home equity loan, you need to fulfill these general requirements:
- More than 15% to 20% equity in your home
- Average credit score requirement of 680
- A Debt-to-Income ratio typically between 36% and 43%
- W2 Income statements and paychecks
Note that your home is used as collateral. If you fail to repay your home equity loan, you could face foreclosure.
Home Equity Line of Credit (HELOC)
Just like a home equity loan, a HELOC loan allows you to borrow some of the equity in your home. However, rather than a lump su, you get an available credit line that you can draw upon as you need. Like a credit card, your available credit line is replenished as you repay borrowed funds. Including your first mortgage, the amount you can borrow is usually capped at 80% or 85% of the value of your home..
The requirements to qualify for a HELOC are similar to those of a home equity loan:
- More than 15% to 20% equity in your home
- Credit score requirement of at least 620
- A Debt-to-Income ratio typically of between 36% and 43%
Like a home equity loan, a HELOC also uses your home as collateral. If you fail to repay any funds you have borrowed, the lender can foreclose.
Cash-Out Refinance Loans
Cash-out refinance loans also take your home equity into account. Unlike a home equity loan or line of credit, a cash-out refinance will see you replace your existing first mortgage with a new first mortgage with a larger loan balance. Lenders will typically allow the new loan to be 80% or 85% of the value of your home. Cash is provided to you when the new mortgage closes.
Cash-out refinances are most popular when interest rates are low, which may allow a borrower to get a larger loan and cash to use without an increase in monthly payment.
The requirements for cash-out refinance loans include
- More than a 15% to 20% equity stake in your home
- General credit score requirement of 620
- A DTI ratio of 43% or less
One important thing to note is that if your final loan-to-value ratio is above 80% you will have to pay Private Mortgage Insurance (PMI). PMI costs will increase the required monthly payment for the new mortgage.
Personal Loans
Personal loans are basic loans you take out to cover personal needs. These needs include anything from making investments to moving, buying groceries, consolidating debt, funding a wedding, or, of course, improving or remodeling your home. They are great options if you just want to make little changes to your home without taking out loans worth tens of thousands of dollars.
Some of the general requirements to qualify for a personal loan include
- A general credit score requirement of 670
- Minimum income requirement as low as $20,000 or even lower. This varies by lender
- A DTI of below 36%
- Some form of collateral like vehicles, real estate, stocks, or valuable jewelry
- Origination fees for processing applications, credit checks, and loan closing. This is usually 1% to 8% of the loan amount depending on your credit score and loan amount.
With a personal loan you also provide documents showing your proof of identity, proof of income, and proof of address. These include
- Driver’s license, passport, military ID, or any other state-issued ID
- Paystubs, statements of returns, W-2s, 1099s, and bank statements
- A utility bill, lease agreement, or rental insurance, among others.
Other loan options you can utilize to finance your home improvement include VA loans and FHA loans. VA loans are specifically geared toward current and previous military service members and their spouses, and FHA loans are available for low-income earners. If you qualify for any of these, you typically enjoy more favorable loan terms.
Things To Consider Before Getting a Home Improvement Loan
At this point, you would have come across mentions of multiple non-QM loan options that may be available to you. Elaborating on them, the most popular and beneficial options offered by non-QM lenders to underserved mortgage seekers include:
1. The Cost of the Project
The cost of making changes and improvements to your home is arguably the most important thing you want to consider. Here, you want to get accurate estimates of the cost of the materials and labor needed.
Estimating your costs helps with making comparisons. You understand just how much you need from a lender, know the loan terms that will be the most beneficial to you, and even determine whether taking a loan will be worth it.
Except you are fighting against time, maybe to sell the property as soon as possible, saving up for your home improvement is almost always a better option. This is especially so if you can save enough money within just a few months.
2. Your Repayment Budget
A loan repayment budget is simply the amount of money you intend to put toward servicing a loan. Of course, this element particularly determines how easily you meet your loan repayment obligations. Missing loan repayments attracts penalties and affects your creditworthiness for future loans, so you want to be wary of this.
First, identify how much you are comfortable putting down monthly for this specific home improvement loan. You then choose a lender that provides you with funding that covers your expenses and terms that allow you to repay within your budget. Note that the lower you have to repay monthly, the longer your loan repayment timeline is.
3. Home Equity
Getting loans through home equity is one of the most popular options you have. For individuals who fancy this, you definitely want to identify how much equity you have on your home to know how much you can get from a lender. Getting an estate evaluator for an accurate estimation of your home value is a good place to start.
By comparing your equity with your budget, expected loan terms, and how much cost you expect on home improvements, you understand how feasible your loan is. You have an idea of whether the loan is profitable or worth it in the long run.
4. Residency Duration in the Home
As mentioned before, if you intend to make improvements on your home to sell it off as soon as possible, a loan is a great option. However, in case you intend on moving within 5 years, you want to be wary about spending huge on big home overhaul projects.
When selling a property, you want to get the most ROI from the real estate market. Acknowledge that your interest on loans takes a good amount from your profits and your returns from improvements aren’t guaranteed to cover your costs. You want to make specific and highly-rewarding improvements.
For example, Realtors’ Remodelling Impact Report says that you only recoup 67% of the costs of improving a kitchen. Comparatively, you get 118% back from a wood floor finish and 147% back from a hardwood flooring refinishing. From this, for a short-term residency duration (especially below 3 years), making improvements on your flooring offers the best returns.
A home overhaul only puts you at risk of loss. You only get worthwhile satisfaction when you enjoy the comfort of your overhaul for more than 5 years.
Key Takeaways
Making improvements to your home is undoubtedly enticing. Certain improvements or remodeling operations bring more comfort to you and, when done right, increase the value of your home. With the return on investment you expect from the real estate market, there is definitely a great incentive to take up loans for these operations.
However, when taking a loan, you want to take note of a number of things. Before choosing a mortgage lender, you want to calculate the cost of your home improvement, calculate your equity, determine your repayment budget, and decide on how long you intend to remain in the home.
These considerations help you recognize your specific needs for a home improvement loan. You then use these needs to choose the lender with offerings or terms that best serve you or satisfy you the most.