How to Get a Home Improvement Loan for Your Next Project

By Upstart Content Team | Updated December 8, 2022
reading time 8 min read
Man doing home improvements with his dog - Upstart Personal Loans

Key takeaways: 

  • A home improvement loan is a personal loan that isn’t secured to your house. You can use the funds for any type of project.
  • You can secure a low-interest home improvement loan by holding a strong credit score and using prequalification tools. If you have bad credit, consider a co-signer or private lender.
  • Other home improvement financing options may use your home as collateral, have higher interest rates, or take longer to process the loan funds.

Your home is likely your largest investment. Properly maintaining your home is essential to ensuring its value and providing a safe place for you and your family to live. But what happens when your home needs maintenance, a repair, or remodeling project, and you don’t have the cash on hand? Costs can quickly add up, and it’s not always smart to tap into your savings. 

When you need affordable financing for a big home project, a home improvement loan could be your best option. They’re often approved fast, add value to your home, and offer competitive rates.

Let’s discuss how to get a home improvement loan, how you can use it, and how to secure one. 

What is a home improvement loan?

A home improvement loan is an unsecured personal loan that doesn’t require collateral. While most people who apply for home improvement loans use them for home-related expenses, these loans are a general personal loan. Unlike other home-related financing options, you won’t need to provide your home’s title. It’s not a mortgage or reverse mortgage, and it won’t put your home at risk.

Home improvement loans are paid back in installments, or regular monthly payments, depending on the size of the loan. The lending amount can be as low as $1,000 to as high as $100,000. Most loans get paid back in 1 to 7 years, depending on the amount and contract terms. 

The payment amount remains the same through the life of the loan—provided you pay as promised and don’t accrue any additional fees or penalties. The total loan amount you qualify for depends on your credit history and ability to repay, which is usually tied to your annual income.

How to use a home improvement loan

Most borrowers use a home improvement loan to increase their home’s value or make it more enjoyable to live in. Common projects include kitchen remodels, adding a second bathroom, installing hardwood floors, or building a garage. These improvements can increase the home’s worth, making the loan a solid investment in your future. You can also decide to keep any leftover funds to pay off credit cards or put toward your mortgage.

For those who need home repairs, a home improvement loan is ideal for replacing a leaky roof, drafty windows, insulation, or broken appliances. 

When to get a home improvement loan

Home improvement loans come with contractual fees and commitments, like any other loan. It’s best to consider your circumstances before applying:

  • Not enough savings. Not everyone has sufficient savings for a home improvement project. If you do, you can avoid interest like you would with other financing options. However, you shouldn’t be tapping into your emergency savings. 
  • Large budget. Is your home improvement project going to be at least $20,000? A home improvement loan will be a better choice than putting a large sum of money on a credit card with a higher interest rate.
  • When money is needed. A home improvement loan will be your fastest funding option if you need funds quickly. Lenders typically fund the loan within a couple of business days to one business week.

How to get a loan for home improvement

Obtaining a home improvement loan might be easier than you think. But it’s important to understand the loan process, including how interest rates can affect your repayment terms. As a homeowner, you don’t want to take on debt you might not be able to repay. 

If you feel comfortable taking on a loan, follow the steps below to ensure you set yourself up for success: 

1. Assess your financial situation

Before taking out a loan, you’ll want to make sure you have a good understanding of your current financial standing. Some questions you might want to ask yourself include:

  • How healthy is my credit score? You’re more likely to get approved for a loan with a competitive interest rate with a good to excellent credit score. If your credit score is in the average to poor range, you may want to work on rebuilding your credit so it doesn’t decline. You can check your credit online anytime without hurting your score by requesting your credit report through each of the three main credit reporting bureaus (TransUnion®, Equifax®, and Experian).
  • Do I have an emergency fund? It’s recommended that everyone have an emergency fund of 3 to 6 months’ worth of expenses. If you don’t have enough money built up, taking on loan payments might put you in a tight spot. Your economic situation can change at any time, and you don’t want to dip into savings.
  • Can I afford to take on more debt? Rather than taking on another loan, you may want to work on paying off other debt. It’s often most beneficial to tackle high-interest debt first, so you can save as much money as possible in the long run.

2. Have a plan for your loan

To minimize your financial risk, calculate an affordable loan amountthat fits the estimated home project’s costinto your current budget. Lenders favor those who have a good idea of how much money they’ll need. Avoid asking for more than necessary, as this can hurt your chances of approval. It might be best to take on one piece of the project at a time for a smaller loan total to handle. 

3. See if you’d qualify

Lenders make a few considerations when determining if you qualify for a home improvement loan. They’ll include your ability to repay (usually determined by a combination of your income and outstanding debts) as well as your credit history (which shows how well you’ve handled loans in the past). The details of what they’ll ask for—as well as how they’ll qualify you—differ by lender. Some basic information they could gather includes: 

  • Basic personal information, including address and phone number
  • Annual income
  • Whether you’ve taken out a loan or credit card in the past 3 months
  • How much money you have in savings and investment accounts
  • The amount you’re requesting to borrow

Pro tip: Upstart lets you check your eligibility and potential loan terms using a soft credit inquiry that won’t impact your score. In a few minutes, see if you prequalify online for a personal loan through Upstart. 

4. Apply for a home improvement loan

When starting the application process, make sure you have all the required documents gathered and ready to submit. This typically includes evidence of tax returns and pay stubs, a government-issued ID, Social Security number, and similar documents. With your prior consent, this step will also be when a hard credit check is implemented on your credit report. It will lower your score by a few points, so ensure your credit is in the best spot possible beforehand.

How to get a home improvement loan with bad credit

If you have poor credit, but your home needs improvements now, there are still ways to secure financing. Think about pursuing one of these options:

  • Get a co-signer. Having a co-signer like a friend or family member sign on your loan can help your chance of approval. If they have great credit, you could gain access to a lower interest rate and more favorable terms. 
  • Consider government loans. The U.S. Department of Housing and Urban Development (HUD) offers programs to help homeowners secure loans for renovating their home. The FHA’s Streamlined 203(k) loan program can provide up to $35,000 to upgrade or repair your home. You may also be able to get the money you need for your projects with an FHA Title 1 loan if you can’t get approved for a home improvement loan.
  • Inquire with a private lender. By researching private lenders, you may be able to find one that specializes in helping homeowners with bad credit get a home improvement loan. Borrowers may have a better chance this way, as the lender will know the money is being put to good use. 

Pro tip: You don’t always need an excellent credit score to get approved for a personal loan that suits your needs. Shop around and compare several offers to make the most affordable decision. Upstart’s AI model looks beyond your score to determine your approval, considering things like education¹ and employment.

What is the best way to get money for home improvements?

From cash to different types of loans, there are many ways to fund home improvements. What’s most important is that the method works best for your current financial situation. 

Take a look at our chart below to compare the most common ways to fund home improvements:

Pros Cons
Cash Simplest May not have enough cash available for a big home improvement project

May cut into important emergency savings

Credit Cards Easy to apply Higher interest rates

Revolving debt (difficult to pay off)

Usually affects your credit score negatively

Home Equity Loan Relatively low-interest rates Puts your home at risk

Requires taking on debt

Home Equity Line of Credit (HELOC) Pull out funds as needed Puts your home at risk

Variable interest rates

Home Improvement Loan General lower rates than credit cards

Fixed payments

More expensive than paying cash

Requires taking on debt

Why choose a home improvement loan

With so many ways to fund your next home project, it can be difficult to know which financing route is best to take. Home improvement personal loans are easy to get through an online application and approval process. Unlike some other options, it’s also possible to get funded  the next business day.

You can make an informed decision by comparing the benefits and disadvantages of each.

Cash vs a home improvement loan

If you can pay for home improvements with cash, you most certainly should. It’s not recommended to live above your means or buy things you can’t afford. In this case, a home improvement loan can be like a payment plan.

Credit cards vs a home improvement loan

Credit cards don’t require you to take out a new loan but lack the stability of a home improvement loan. A home improvement loan has fixed rates, a steady monthly payment amount, and often a lower APR compared to a credit card, which can have variable rates.

Home equity loan vs a home improvement loan

Home equity loans can be a great fit for major home improvements and offer relatively low-interest rates. However, if you don’t have significant equity in your home, this one-time lump sum might not be enough. Plus, you’ll have to pay closing costs and fees similar to your mortgage. With a home improvement loan, you can aim for a total that suits your needs and avoid extra fees.

HELOC vs a home improvement loan

While the benefits of a home equity line of credit (HELOC) usually include a large line of credit flexible enough for any use, it’s tied to the equity in your home. This means your house becomes collateral, and defaulting on payments could put your home at risk. 

Interest rates on HELOCs usually aren’t fixed, so what you pay every month can change based on global interest rates. While some banks have safety guards in place that won’t let the rate rise more than 2% a year, even that could make your payments unmanageable over time. A personal loan has fixed rates that never change.

While U.S. homeowners spend over $325 billion a year in home improvement costs. These loans are a manageable way to help with the rising cost of owning a home.

Financing your dream home project

Now that you know how to get a home improvement loan, it’s time to decide if it’s the right financing path for you. If approved for a home improvement loan online, you should be able to see a preliminary loan offer right away, including the loan amount and interest rate. 

Upstart can tell you what you qualify for within minutes. It will not count as a hard pull on your credit history, unless you continue with the full application to accept your loan offer. 

However, other lending institutions may not offer this “soft pull” on your credit, so be careful. One hard inquiry can cause your score to go down a few points, which may be the difference between getting the rate you want – or getting a loan at all. Securing the right home improvement loan with Upstart can help you get necessary repairs done and achieve your dream home in no time.

¹ Neither Upstart nor its bank partners have a minimum educational attainment requirement in order to be eligible for a loan.

This content is general in nature and is provided for informational purposes only. Upstart is not a financial advisor and does not offer financial planning services. This content may contain references to products and services offered through Upstart’s credit marketplace.

About the Author

Upstart Content Team

The Upstart Content Team shares industry insights, practical tips, and borrower success stories to help people better understand the important “money moments” of their lives.

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