When you've been living in a particular house for a long time, renovations aren’t just desired—they’re necessary. Whether it’s minor repairs, major upgrades, or a complete remodeling, all of it takes time, money, and effort.
This is where home improvement loans come in. Whether you want to make your home more energy-efficient or just replace old plumbing, a home improvement loan helps you do it.
With flexible repayment options and better rates than credit cards, home improvement loans are a smart solution if you’re planning upgrades around the house.
Related article: Reasons to Refinance Your Home
A home improvement loan is when you borrow money from a bank, lender, or financial institution based on their terms to upgrade your property.
Home improvement loans are different from home refinance loans—they’re shorter-term and typically for smaller amounts. But the steps to secure one are straightforward if you do your homework.
If you're planning to apply soon, here are the steps to follow:
You must clearly explain your loan purpose to the lender. The more specific you are, the easier it is to justify the loan.
For example, if you're adding a patio, describe the value it adds. Your confidence in the project will boost your chances of approval.
Factor in all expenses and add a cushion for unexpected costs. Be confident in the exact number—lenders appreciate borrowers who know what they need.
If possible, pay part of the renovation in cash. This lowers the loan amount and total interest.
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Your equity (the portion of your home you’ve paid off) often serves as collateral for the loan. Even if you have high equity, you must prove you can repay the loan.
Your loan terms depend on your repayment ability.
Loan officers will check your credit history, so you should too—before they do.
Make sure your credit report has no errors. If needed, take a few months to improve your score before applying.
Related video: How Does My Score Impact My Loan
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You’ll need:
Some lenders may also request your contractor’s estimate—be prepared.
Before applying, get pre-qualified over the phone or online by discussing your financial situation. This gives you an idea of how much you can borrow.
Once pre-qualified, you’ll need to submit documents to confirm your details and get the maximum loan amount.
Next, submit a formal application and your documents to get pre-approved. You can often apply online or visit a nearby branch.
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Here are the most common types of loans to consider:
These are unsecured loans where you borrow a fixed amount. Your interest rate depends on your credit score, loan amount, and term. No collateral is needed, but interest rates may be higher.
A personal loan doesn’t require collateral, so your assets aren’t at risk. Secured personal loans often offer better interest rates and loan amounts than unsecured ones.
They typically have shorter repayment terms, so you’ll pay less interest overall.
These loans are funded by multiple individual investors who contribute small amounts. Your credit score, amount, and term influence your interest rate.
Repayment periods are short, but interest rates are often higher than other loan types.
One of the most popular options. Home equity loans have longer terms, lower monthly payments, and possibly tax-deductible interest. Just note that longer terms mean more total interest over time.
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Cash-out refinancing replaces your current mortgage with a larger one—and you get the difference in cash.
You’ll have lower borrowing rates but a longer repayment period.
Thanks to the Tax Cuts and Jobs Act of 2017, most personal residence improvements aren’t tax-deductible. However, two exceptions still apply:
Examples include:
Note: Only eligible if these don’t increase the home's value.
Also, if you sell your home for a profit, you may exclude up to $250,000 in gains ($500,000 for married couples filing jointly).
Improvements can get pricey—unexpected issues often arise. Experts recommend a 10–20% contingency fund.
Here are smart ways to stay on track:
Over time, small upgrades add up—from new tiles to full remodels. Whatever the size, improvements cost money.
Home improvement loans can transform an outdated house into your dream home.
If you're ready, explore the best loan type for your needs and start planning.
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