Home Improvement Loans

This Page Was Last Updated: November 09, 2022
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What You Should Know

  • There are six types of home improvement loans.
  • Secured loans have a lower interest rate but missing payments can result in foreclosure.
  • Unsecured loans have a higher interest rate because there is no collateral.
  • The best loan depends on your home equity, repayment preferences, and project length.

Home improvement loans can be a great source of funding to cover the costs of renovating, remodeling, and fixing your home. Most people think their only option is a personal loan; however, that is not the case.

You can now get various loan options from federal programs to a home equity line of credit. Home improvement loans are flexible with rates, repayments, terms, and loan amounts. There are six types of home improvement loans, each with different guidelines, eligibility, and rates.

Interest Rates on Home Improvement Loans

The Best Home Improvement Loans

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The best loan for your home improvement depends on your finances and the objective of the loan. Each of the six home improvement loans are briefly introduced before diving into more detail in the following sections. Additionally, clicking on each loan summary jumps you to the respective part of the article. Below the introductions, you can find suggestions based on your objective.

1. HELOC: Second mortgage secured by your home equity. Only pay interest on the amount you withdraw.

2. Home Equity Loan: Lump-sum second mortgage secured by your home equity. Payments and interest are due immediately.

3. Cash-out Refinance: Replace your existing mortgage with a larger one and keep the lump-sum cash difference. This option has the lowest interest rate but highest fees.

4. Personal Loans: Unsecured lump-sum loan with a higher interest rate. Has a smaller payback period.

5. Federal Programs: Varying government loans and grants.

6. Credit Cards: Unsecured revolving loan with the highest interest rate. Only pay interest on the amount you withdraw. Has an interest-free period of 25 to 30 days.

ObjectiveBest Options
Single large project
  • Cash-out refinance
  • HELOC
  • Home equity loan
You have low cash, but high home equity
  • Cash-out refinance
  • HELOC
  • Home equity loan
You have low home equity, or don’t want to collateralize your home
  • Personal loan
Access to quick cash
  • HELOC
  • Credit card
Increasing home suitability
  • Federal programs

The Six Home Improvement Loan Options

Average RateTerm LengthMaximum CLTV
1. Home Equity Line of Credit (HELOC)8.00%10 to 30 years85%
2. Home Equity Loans8.50%5 to 30 years85%
3. Cash-out Refinance7.20%Up to 30 years80%
4. Personal Loans12.00%1 to 5 yearsN/A
5. Federal Programs8.00%VariesVaries
5. Credit Cards20.00%N/AN/A
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1. Home Equity Line of Credit (HELOC)

Interest Rate: 8.00%
Term Length: 10 to 30 years
Maximum CLTV: 85%

Pros of HELOCsCons of HELOCs
No interest on unused amountsUnpredictable payments due to variable rate
Interest-only paymentsAt least 20% home equity is required
The lender can waive HELOC feesPayment default can result in foreclosure
Ability to tax deduct interest
Doesn’t affect primary mortgage

A home equity line of credit (HELOC) allows homeowners to borrow cash against their home equity, using the home as collateral. It is a second mortgage that won’t affect your primary mortgage. HELOCs function like a credit card, where a loan limit is pre-decided, and the borrower can access funds from the HELOC, pay them back and choose to take the funds out again.

HELOCs are structured into the draw and repayment period. During the draw period, you are free to take funds out of the HELOC and are only required to pay back interest on any outstanding balance, not the principal. Once the draw period is over, the repayment period starts.

During this period, you can no longer borrow funds from the HELOC. Instead, you must pay back any outstanding balance, which becomes an amortized loan with regular monthly payments. To calculate how much your monthly HELOC payments will be, use our HELOC payments calculator.

LenderHELOC Rates (APR)Max. CLTV
Bank of America
Variable Rate: Starting at %80%

Last updated January 1, 1970. Rates are for informational purposes only.

Tip: Calculating Loan-to-Value (LTV) Ratio

The maximum amount that you can borrow from your home equity depends on your loan-to-value (LTV) ratio. Most lenders allow up to an 80% to 85% LTV ratio, meaning you must have at least 15% to 20% home equity before the HELOC, HELOAN, or cash-out refinance.

For example, suppose you own a $400,000 home with a $200,000 mortgage balance. In this case your loan to value is 50%. If your lender allows for a maximum 80% LTV, you could borrow an extra 30%, or $120,000.

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2. Home Equity Loan (HELOAN)

Interest Rate: 8.50%
Term Length: 5 to 30 years
Maximum CLTV: 85%

Pros of Home Equity LoansCons of Home Equity Loans
Competitive interest ratesPayments due immediately
Predictable monthly paymentsNo interest-only payments
The lender can waive feesRequires a credit score greater than 670
Ability to tax deduct interestPotential for home foreclosure
Doesn’t affect primary mortgage

A home equity loan allows homeowners to borrow a lump-sum amount against the equity they own in the home. It is similar to a HELOC as the house is collateral. However, in a home equity loan, you receive one amount at the beginning and cannot borrow more funds.

As the home is collateral, lenders can offer competitive rates as they have a lower risk. Home equity loans are great for one-time large projects such as building a new roof or remodeling the kitchen. You can estimate the costs of these projects by using a roofing calculator or a stair calculator.

LenderHELOC Rates (APR)Max. CLTV
US Bank
Variable Rate: Starting at %80%

Last updated January 1, 1970. Rates are for informational purposes only.

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3. Cash Out Refinance

Interest Rate: 7.20%
Term Length: Up to 30 years
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Maximum CLTV: 80%

Pros of Cash-out RefinancesCons of Cash-out Refinances
Lower mortgage rateRefinance fees
Single mortgage paymentHome is collateral
Up to 30 years termPrivate mortgage insurance (PMI) is required if LTV ratio > 80%
Interest payments can be used as tax deductionsDebt-to-income (DTI) ratio needs to be < 43%
Doesn’t affect primary mortgage
Cash-out Refinance Flowchart

A Cash-out refinance is the process of borrowing additional funds when you refinance your existing mortgage and pocketing the cash difference. For example, suppose you have an outstanding mortgage balance of $300,000. In that case, you can refinance your mortgage to $315,000 and cash out $15,000 for home improvements.

The new loan will replace your existing mortgage. As a result, your interest rate, loan length, and monthly payment may change. Many people refinance into lower interest rates to decrease their monthly mortgage payments or the total amount of interest paid.

When you cash out refinance, you must pay high mortgage replacement fees. As a result, performing one is best for big-ticket home improvements. After finalizing the loan, you’ll receive a lump sum payment upfront. Your mortgage payments will immediately change. In some cases, they may increase. However, performing a cash-out refinance is typically the lowest interest rate option. To calculate the maximum amount you are eligible to borrow, use our cash-out refinance calculator.

Sample Cash-Out Refinance Lender
LenderMinimum Credit ScoreLoan AmountsMaximum LTV
620N/A80%
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4. Personal Loans

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Interest Rate: 12.00%
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Term Length: 1-5 Years
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Maximum Credit Score: 610

Pros of Personal LoansCons of Personal Loans
Quick application processHigher interest rate
No collateral requiredA smaller maximum borrowing amount
Perfect for unforeseen repairsShorter repayment period
No tax deductions on interest paid

A personal loan is a loan where a lump-sum amount is borrowed without any collateral. If you do not own enough home equity and have an LTV ratio greater than 80%, then a personal loan will be the best option for your remodeling needs.

Personal loans can get you the funds relatively quickly as the home is not part of the loan. However, the interest rate charged on a personal loan is higher than a HELOC or a home equity loan as there is a higher risk for the lender. Personal loans can be fixed-rate or variable-rate. Fixed payments are more predictable, whereas variable-rate constantly changes with a benchmark index like the prime rate, which is connected to the Fed funds rate.

These loans usually have to be paid back within 2-5 years and have closing costs too. Personal loans are best used if you have to do an emergency repair where time is crucial, such as a heating or cooling system repair. Use our personal loan calculator for home improvements to determine your monthly payment.

Sample Personal Loan Lender
LenderAPR*Loan AmountsTerm Length
5.99% to 21.74%Up to $100,00012 to 84 months
*APR as of Oct 27, 2022
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5. Federal Programs

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Interest Rate: 8.00%
Minimum Credit Score: 500 to 620
Common Programs: FHA, VA, USDA

Pros of Federal ProgramsCons of Federal Programs
Low-interest rateStrict eligibility requirements
Part of the mortgageNot all lenders can make these loans
Several grants available

The government offers some low-cost solutions to individuals who qualify for their home renovation programs. Different government agencies have various programs. Therefore, if you are eligible for an FHA loan, VA loan, or USDA loan, check if you qualify for additional assistance for home renovations.

FHA loans offer the FHA203(k), which is a particular FHA loan where the borrower receives their mortgage amount and an additional amount for renovations. The FHA must approve the home being purchased. It must be a home that requires renovations to ensure safety and livable standards to receive the additional amount.

The amount borrowed for renovations can go from $5,000 to $35,000, depending on the home's condition. A VA renovation loan is similar to an FHA203(k) loan, where the borrowing amount will include both the mortgage and renovation funds. Similarly, the USDA has a program known as the USDA Rural Housing Renovation Loan Program, which caters to individuals who purchase homes that require renovations.

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6. Credit Cards

Interest Rate: 20.00%
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Credit Score: 700+
Grace Period: 25 days

Pros of Credit CardsCons of Credit Cards
Payment flexibilityVery high-interest rates
Quick applicationFee for credit card
Interest-free grace periodsLow borrowing limits on credit cards

Credit cards let you borrow funds for a short period and can be great for emergency renovations that are required. You are only required to make the minimum payment to your credit card account if you are strapped for cash. Interest starts accruing on the bill if you have an outstanding balance after the last payment date.

Credit cards have relatively high interest rates compared to the other loan options because they pose a higher risk for lenders as there is no collateral. It might be wise to have a credit card ready for the projects if you need to buy extra material quickly. For example, if you calculated the amount of concrete required for the project, but the project was slightly changed, you may have to buy more concrete to ensure that the project is completed on time.

Store Credit Cards

One specific type of credit card that may be helpful for home improvements in some cases is a store credit card. These credit cards are usually issued by large stores such as Lowe's, Home Depot, IKEA, Walmart, etc. Nowadays, almost every large store has a series of cards.

However, they typically provide little value for the consumers compared to the credit cards offered by large lenders. On the other hand, some store credit cards may be beneficial for home improvement financing, especially if most of the material is bought from the store that issued the card.

In addition, all store credit cards tend to have no annual fee, which means that even if a borrower does not use them after the home improvement project, they will not need to lose money on the card fees. The following table overviews the most helpful store credit cards for home improvement projects.

NameAPRCredit LimitBenefits
Home Depot Project Loan19.6%$55,000
  • Fixed Low Monthly Payments.
  • Loans up to $55,000.
  • Monthly Payments Max $20 per $1000 Spent.
IKEA Projekt21.99%$5,500
  • 0% Interest for up to 24 Months.
  • Up to 5% Back in Rewards.
Amazon Prime Rewards22.24%$30,000
  • $100 Welcome Bonus.
  • Up to 5% Back.
  • Get 10% Back or More on Select Products.
Menards® BIG Card®24.99%$7,000
  • 2% Rebate on all Menards® Purchases.
  • 6- and 48-Month Financing Options.
Harbor Freight Tool25.99%$2,000
  • 10% Off the First Purchase.
  • Up to 5% Back.
  • 0% Interest for up to 36 Months.
Lowe’s Advantage26.99%$2,000
  • Fixed Payments at 7.99% APR.
  • Everyday Discount of 5% at Lowe’s.
  • 20% Off First Purchase ($100 Limit).
Floor & Decor Credit Card29.99%$15,000
  • Up to 48 Months Promotional Financing.
  • No Interest if Paid In Full Within 6 - 12 Months.

Frequently Asked Questions (FAQ)

Different loan programs have additional requirements. However, most loans will require a minimum credit score of 620.

Federal programs have different requirements. FHA 203(k) loans can go as low as 500, while VA and USDA loans do not have minimum credit score requirements.

Yes, a few loan programs are tax-deductible as interest payments on HELOCs, home equity loans, and cash-out refinances can be claimed as tax deductions. The interest payments on your mortgage through a federal loan program can also be claimed as an itemized deduction. Personal loans and credit cards cannot be claimed.

There are many different reasons a person might take a home improvement loan. It might be as simple as doing a cosmetic renovation, but usually, people choose to do it to increase the value of their home by increasing its efficiency. The following table provides insight into why people have taken home improvement loans in the last two years, according to the US Census Bureau.

Reasons for Home ImprovementsNumber of ProjectsThe proportion of Total Projects
Accessibility for Elderly or Disabled2,25314.39%
Energy Efficiency12,04476.91%
Prepare House for Sale1,3628.70%

Depending on the project, the cost may vary significantly. Generally, the average cost of a home improvement project is around $4,749, although it is not a representative cost of an expected expenditure. The median price of a home improvement project is only $1,500, which means that 50% of the projects cost less than $1,500. The average cost is much larger than the median because a few substantial home improvement projects drive the average price up.

Home Improvement Expenditures
Median expenditures$1,500.00
Mean expenditures$4,749.00
Total expenditures × 1,000$521,828,933.00

Even though it might be useful to know the median and the average cost of every home improvement project, the cost of different items may vary greatly. For example, replacing a roof may cost much more than replacing a doorstep. Because of that, an individual trying to estimate the cost of their project should look at the average cost of every single item rather than relying on an average home improvement project cost.

Home Improvement Median Expenditures By Project
Disaster Repairs
Earthquake$4,000.00
Tornado/Hurricane$8,000.00
Landslide$7,500.00
Flood$7,200.00
Other$9,000.00
Room Additions And Renovations
Bedroom$21,320.00
Bath$10,000.00
Recreation Room$8,167.00
Kitchen$29,040.00
Other$7,000.00
Remodeling
Bath$3,300.00
Kitchen$6,000.00
Exterior Additions And Replacements
Attached Garage/Carport$3,404.00
Porch/Deck/Patio/Terrace$3,000.00
Roofing$7,000.00
Siding$3,500.00
Windows/Doors$1,500.00
Chimney/Stairs/Other Exterior Additions$1,500.00
Interior Additions And Replacements
Insulation$900.00
Water Pipes$648.00
Plumbing Fixtures$450.00
Electrical Wiring/Fuse Boxes/Breaker Switches$750.00
Security System$400.00
Flooring/Carpeting/Paneling/Ceiling Tiles$2,000.00
HVAC$4,000.00
Septic Tank$2,400.00
Water Heater/Dishwasher/Garbage Disposal$600.00
Other Interior$1,500.00
Lot Or Yard Additions And Replacements
Driveways/Walkways$2,160.00
Fencing/Walls$1,500.00
Swimming Pool/Tennis Court/Recreational Structures$5,000.00
Shed/Detached Garage/Other Building$2,160.00
Landscaping/Sprinkler System$1,000.00
Other$2,000.00
Any calculators or content on this page is provided for general information purposes only. Casaplorer does not guarantee the accuracy of information shown and is not responsible for any consequences of its use.