Get Home Improvement Loans

Learn the differences between secured and unsecured home improvement loans. Discover the pros and cons and how to apply for a home improvement loan.

When you purchase a home, it is often your largest investment. Not only are homes naturally expensive, but many homeowners end up spending money to make improvements to their house. Even something as small as adding a fresh coat of paint or making minor renovations around the yard can greatly impact the value of your home. While many homeowners want to make changes to improve their house, these renovations are costly. While some renovations can wait, there are certain situations where you need to improve your home as quickly as possible, such as making repairs or modifying your home to avoid future issues.

In these circumstances, you can take out a home improvement loan. Home improvement loans are a specialized personal loan, which provides funding to fix or make a major change to your house. There are several different home improvement loans, each with different eligibility requirements and stipulations.

Applying for a Home Improvement Loan

Home improvement loans are available from multiple sources, such as banks, credit unions or other private lenders. The biggest considerations when deciding whether you get a home improvement loan, as well as your interest rates and repayment plan, is your credit history and annual income.

Some lenders allow you to complete an application online, while others want to meet in person. Others use a hybrid method, where you can pre-qualify for a loan online, but meet in-person or speak over the phone to negotiate the finer details of the loan.

While the eligibility requirements vary, there are several documents most lenders look for. When you are getting ready to apply for a loan, gather the following items:

Proof of identification, such as a driver’s license, state ID or passport.
Pay stubs and bank statements from the last 30 to 60 days.
Any documents relating to your home, including additional housing loans you’ve previously applied for.

Advantages of Home Improvement Loans

There are several notable advantages for home improvement loans compared to other types of loans. Lenders are not as strict when you are investing in your home. To lenders, the fact you were able to afford your home suggests financial stability, which means it is not as risky to lend you money. Improving your home is also considered a wise investment, which provides even more security to lenders. Because the eligibility requirements are not as strict, it is easier to search for lenders and find a favorable deal.

While there are other home improvement programs, these programs typically have strict requirements on how you spend the money. The funding from these programs is also much lower than what you can get from a loan. Despite the name, most home improvement programs are meant for making emergency repairs to your home. A home improvement loan can be applied to any area relating to your house, such as expanding rooms, building a patio, converting an attic or replacing your windows.

Disadvantages of Home Improvement Loans

While there are many positives associated with home improvement loans, there are some negatives to be aware of. Before you take out a home improvement loan, make sure your finances are able to support it. It typically takes between three to five years to pay off a home improvement loan. Interest rates can add up over this time, and you can expect late fees if your loan did not include collateral.

It is also possible the amount you borrow does not cover your project. In some cases, you may start to make changes to your home, only to discover the project was bigger than expected. For example, if you take out a loan to replace your piping, you may discover the pipes are rusted and in worse condition than expected, requiring you to replace all of your piping.

There are also some outside factors you cannot account for. Your home value may decrease because of changes in the neighborhood. This may make it harder to negotiate if you are trying to take out a larger loan, since it seems financially risky to spend so much given the current home value.

Secured and Unsecured Loans

If you want a home improvement loan, you must decide between a secured or unsecured loan. Secured loans are insured by collateral. How much collateral is required depends on the amount of the loan. It is common for your house to be used as collateral for home improvement loans. If the loan is small enough, you may be able to use something else, such as your car.

It is easier to get better rates with a secured loan. Lenders are not taking as much of a risk, since they have your collateral to fall back on if you are unable to pay the loan. If you have a poor credit score, you can improve your odds of getting a good deal by applying for a secured loan.

Unsecured loans do not have any collateral requirements. Because of this, your financial history has a much larger role in determining interest rates, how much you can borrow and your repayment plan. Even if the loan is smaller than a secured loan, you may end up with higher interest rates because the lender is taking a greater risk.

Wells Fargo

Wells Fargo is a major bank chain with branches throughout the United States. If you already have a Wells Fargo account, you may be eligible for lower interest rates on your home improvement loan. The application process is also easier, since Wells Fargo already has most of your financial information. Wells Fargo also offers smaller home improvement loans for under $5,000, while most other lenders have a $10,000 limit.

SoFi

SoFi is considered a top online lender because they offer larger home improvement loans, up to a maximum of $100,000. The company also provides fixed interest rates, which begin at 5.99 percent. Before you apply for a loan, you can request a soft credit check to get an estimate on your rates and general eligibility. SoFi allows you to put a temporary pause on your payments if you lose your job, something few other lenders would consider.

Avant

Avant is the best choice if you need an immediate home improvement loan. The company runs a soft credit check to determine whether you prequalify for a loan. If you qualify, you can get your loan within 24 hours. The company provides both secured and unsecured loans. Avant has a smaller maximum limit than other lenders, only going as high as $35,000.