How to Get a Home Improvement Loan in 7 Steps
Are you ready to get busy on missed maintenance, overdue honey-dos, and ambitious home upgrades? You might need a little help. Check out our handy guide on how to get a home improvement loan.
What Is a Home Improvement Loan?
What Can a Home Improvement Loan Be Used For?
How to Get a Home Improvement Loan
1. Assess Your Financial Situation
Alternatives to Home Improvement Loans
Home Equity Loans and Cash-Out Refinances
The Right Home Improvement Loan for You
HOUSE CALLS: HOME IMPROVEMENT LOANS
It’s a great time to invest in the long-term value of your home. Simple upgrades help build your equity even as you work to pay down your mortgage. A new kitchen, bathroom, or deck can add years of comfort and convenience for your family and pay off big when it comes time to sell.
A home improvement loan is an easy, flexible, and transparent way to access the funds you need to improve your property without tapping your equity, maxing out your credit card, or borrowing further against your home.
Here’s how to get a home improvement loan that matches both your ambitions and your wallet. We take a look at what a home improvement loan is, how it works, the key steps to applying for a loan, and how home improvement loans stack up against some
other financing options.
WHAT IS A HOME IMPROVEMENT LOAN?
A home improvement loan is a loan designed to help you pay for significant maintenance, repairs, or upgrades to your home. Home improvement loans are similar to personal loans in that you are borrowing a single lump sum that must be paid off over time and your loan is not secured by your home or another form of collateral such as a cash down payment.
Depending on your financial situation, a home improvement loan might also be easier to qualify for than a personal loan because you can provide estimates of the expected cost of your project. Additionally, the money will be going towards improving
the value of a fixed asset that you own.
WHAT CAN A HOME IMPROVEMENT LOAN BE USED FOR?
This type of loan can be used for almost any repairs, maintenance, or upgrades to your home. However, as a single lump-sum borrowing, it’s best used for a specific project or a predetermined (and pre-costed) set of expenses. That can mean anything from roof repairs, new windows, a complete deck addition, or a bathroom upgrade.
Home loans can range in value from a few thousand dollars to $50,000 or more. They usually need to be repaid in 5 to 10 years, although larger loans may extend up to 12 years. How much you can borrow, your interest rate, and how soon you need to repay
your loan will depend on your income, your credit score, and other factors.
HOW TO GET A HOME IMPROVEMENT LOAN
Home improvement loans are available from many banks and credit unions as well as other lenders, but it’s best to go with a lender who has an interest in and understanding of your overall financial situation. Here’s how to go about it:
1. Assess Your Financial Situation
Take a hard look at your overall situation. While home improvements are a valuable investment of time and money, you will be paying back a loan (plus interest) over some time. Ask yourself:
- How important are the improvements?
- Can you delay them without causing further damage until you can pay out of pocket?
- How much should the improvements cost?
- How much will they add to the value of your home?
- Can you afford to repay a home loan (along with any other debts) over several years?
- What other sources of funding do you have?
2. Check Your Credit Score
Check your credit score online or by ordering your credit reports from the three big credit bureaus. You’ll usually need a score of about 740 to get the most advantageous rates for your loan. If your credit score is lower than this, you may need to take some time to improve it by paying down existing high-interest debts or disputing incorrect information on your report.
3. Research Lenders and Loans
Begin to research potential lenders. Member-owned credit unions have a direct stake in your long-term success and are more likely to consider how improvements to your home will enhance your overall financial well-being, rather than just looking at your credit score. As financial co-ops, they are often able to offer better interest rates. Also compare:
- The range of interest rates offered by different lenders
- Typical repayment terms and loan sizes
- Home loans for specific projects, such as energy conservation upgrades
- Loan costs, such as processing or origination fees, and closing costs
You should check out a wide range of lenders online and contact at least three in person.
4. Get Estimates
Now cost out supplies and equipment or get detailed, dated quotes from contractors to support the overall cost of your home improvement project. Evidence of planning and organization on your part is very valuable when approaching lenders and shows you understand the long-term value of your project. Also, provide details of improvement work you have completed to date.
5. Gather Documents
Gather the documents you will need to apply for your loan, including:
- Proof of identity and address
- Proof of home ownership
- Proof of employment and income such as pay stubs
- Details of outstanding debts and other liabilities
- Details of your monthly expenditures
6. Apply for Your Loan
Apply for a loan either online or in person. You’ll need to provide or upload documents and authorize a credit history check. You might have to pay an application or processing fee. Approval is generally very quick, especially with credit unions where you will often be in direct touch with the branch loan officer considering your application.
7. Receive Your Loan
If you qualify, you’ll be notified that your loan is approved and the full lump sum will usually be deposited directly into your checking account—often within a day. Loan costs such as closing or maintenance fees are sometimes dedicated from this
amount or rolled into the interest payments you will make on the loan over time.
ALTERNATIVES TO HOME IMPROVEMENT LOANS
Home improvement loans are a good way to borrow money because lenders understand you are investing in a fixed asset that will continue to appreciate in value. You can also often claim the interest you pay on money borrowed to improve your home as a tax deduction. Borrowing money in a dedicated home improvement loan can help you claim these deductions.
That said, there are other ways to fund repairs, maintenance, and upgrades to your home that might be better in some cases. These include:
Cash Savings
If you have cash savings on hand that you can use for home improvements, this is almost always your best option. You’ll save on interest payments on a loan and any interest lost by not keeping the money in your savings account will likely be more than offset by the appreciation in the value of your home.
Credit Cards
Credit cards provide instant access to significant amounts of credit that you can use for anything you please. You can even get cards that offer savings or rewards for spending on home improvements or at home improvement stores. You’ll also pay much more interest, but for smaller projects that you can pay off quickly, a credit card might be your best option.
Vendor Loans
For specific upgrades such as windows, roofing, or HVAC equipment, vendors often offer their own financing options, sometimes in partnership with banks and credit unions. Approval is also very easy, but you will usually pay more in interest and other fees over time.
Personal Loans
A personal loan is an unsecured lump sum loan similar to a home improvement loan, except without the expectation that the money will be reinvested in a fixed asset (your home). Personal and home improvement loan rates are usually similar, but you might find it easier to get approved for a loan for a specific, fully costed home improvement project.
Home Equity Loans and Cash-Out Refinances
Borrowing directly against your home by taking out a home equity loan or a cash-out refinancing of your mortgage is a good way to get a large lump sum at an affordable rate for big projects that will dramatically increase the value of your home. While
these loans can take decades to repay, they are generally the best way to fund big projects costing $100,000 or more.
THE RIGHT HOME IMPROVEMENT LOAN FOR YOU
A home improvement loan is a great way to pay for small to medium-sized projects that add immediate value to your home that your family can enjoy. Look for a loan that offers:
- The right amount of funds for your needs
- A reasonable fixed interest rate
- Affordable fees and charges with no balloon payments or early payment penalties
- Clear terms and an easy application process
As long-term partners in your financial success, credit unions are often a great place to look for affordable, flexible loans and friendly, understanding service.
At Red River Credit Union, we know an investment in your home is an investment in yourself. We offer our members or future members home improvement loans of up to $50,000 with:
- Great fixed rates*
- Terms from 5 to 12 years
- No closing costs, inspections, or equity required
Click below to learn more about how RRCU can help turn renovation dreams into reality with an easy, affordable home improvement loan.
SEE OUR HOME IMPROVEMENT LOAN OPTIONS & BENEFITS
*With approved credit. Rate based on term and credit score. Rates subject to change.