The best type of loan for home improvements is either a personal loan or a home equity loan, depending on things like the amount of funding you need and whether you’re willing to risk your home as collateral. Both of these types of loans allow you to use the money for nearly any expense, including home improvements.
Best Types of Loans for Home Improvements
Type of Loan
Home Equity Loan
Amount of funding
$1,000 - $100,000
Depends on your equity (could be more than $100k)
Yes, your house
1 - 7 years
5 - 30 years
4% - 36%
4% - 12%
Credit score requirement
585+ (660+ for no origination fee)
Usually within 7 business days
2 - 6 weeks
The most important distinction between using personal loans and home equity loans for home improvement is the presence or absence of collateral. Personal loans are unsecured loans that allow you to borrow based on your credit, income and other factors. Home equity loans let you borrow based on the difference between your home’s value and the remaining mortgage balance, using your house as collateral if you default. Home equity loans will still consider your credit and income, too.
If you want a lower APR and a longer payoff period, and you don’t mind using your house as collateral, you should use a home equity loan for home improvements. If you prefer having an unsecured loan with less stringent credit score requirements and faster funding, a personal loan is the better choice.
The biggest differences between a home equity loan and a home improvement are that borrowers can get more money, lower interest rates and longer payoff times with a home equity loan, but they have to use their home as collateral. In contrast, the term “home improvement loan” generally refers to an unsecured personal loan used for the purpose of home improvement. Most personal loans can be used for any purpose and do not require collateral.… read full answer
Home equity loans also can be used for anything (including home improvement). But unlike the majority of personal loans, they are secured. If you fail to pay back your home equity loan, it’s possible the lender could foreclose on your house. Because of this, home equity loans are riskier for borrowers than personal loans for home improvement.
Home equity loans have the potential to be larger than personal loans, however. The amount you can borrow is based on your house’s market value minus the amount left to pay on the mortgage. You likely won’t be able to borrow 100% of your house’s equity, though. The lender will set a percentage.
Home equity loan vs. home improvement loan:
Home Equity Loan
Home Improvement Loan
Can be used for home improvement?
Yes (by home)
No (in most cases)
Amount you can borrow
Percentage of home equity (value minus mortgage balance)
$1,000 - $100,000
Years to pay back
5 - 30
1 - 5 (occasionally longer)
4% - 8%
6% - 36%
Usual credit score requirement
660+ for no origination fee
585 - 659 with an origination fee
A month or more
Less than a week
Home Equity Loan or Home Improvement Loan: Which is Better?
Home equity loans are better if you’re looking for the lowest interest rates, very long payoff periods, and especially large loan amounts.
Home improvement loans are better if you don’t want to put your home at risk, you have little equity in your home, or you need funding quickly.
Both types of loans are good for paying off home improvement expenses. But personal home improvement loans are definitely the less risky option.
There are plenty of home improvement loans with no equity needed. Only home equity loans and home equity lines of credit require the borrower to use the equity in their home. The best way to get a home improvement loan with no equity is by applying for an unsecured personal loan. Personal loans base eligibility on your credit and income, so you don’t need to own property worth a certain amount of money to take one out. And you can use personal loans for home improvements or pretty much anything else. That’s not your only option, though.… read full answer
How to Get Home Improvement Loans with No Equity:
Take out an unsecured personal loan. You’ll usually need a credit score of 660+ to get an unsecured personal loan, but some lenders accept applicants with scores as low as 585. These loans have absolutely no collateral.
Get a secured personal loan. If you’re willing to put up something other than your home as collateral (e.g. a car, stocks, or money in a bank account), you can take out a secured personal loan even with bad credit. These loans tend to have lower APRs than unsecured personal loans, but if you default the lender can keep your collateral.
Get a government-backed home improvement loan. The government offers a few loan options that don’t require any equity. The U.S. Department of Housing and Urban Development helps insure property improvement loans of $7,500 or less. These are called FHA Title 1 loans. If you’re a veteran, you can also look into a renovation loan through the Veterans Administration.
All in all, if you don’t have any home equity, there are still plenty of avenues for you to pursue. A personal loan is probably the most convenient.
However, there are both pros and cons to getting a home improvement loan with no equity. The biggest benefit is that you won’t risk losing your home because you won’t be able to secure a loan with it. You’ll also likely get quicker approval and funding timelines if you apply for a personal loan rather than a home equity loan.
Drawbacks to getting a home improvement loan with no equity include the fact that you may not be able to borrow as much as you could with a home equity loan. You’ll also likely have much higher APRs if you get your home improvement financing through a personal loan rather than a home equity loan.
Home improvement loans give homeowners the funds needed to complete projects related to maintaining or increasing the value of a home and the surrounding property, such as remodeling a room, putting on a home addition, or replacing a roof. Although they have a unique purpose, loans for home improvement function just like most other loans. The borrower receives a lump sum of money and must pay it back, along with interest, over a certain number of months.… read full answer
Most lenders actually don’t differentiate home improvement loans from their other personal loans. Personal loans can typically be used for any purpose, including home improvement. Some lenders, such as LightStream, give specific interest rate ranges for home improvement loans versus other types of personal loans. But they are not common.
The interest rate on a home improvement loan depends on the borrower’s credit and income, among other factors. And the lender may charge additional fees, such as an origination fee for processing the loan.
How home improvement loans work:
Application process: Before applying for a personal loan for home improvement, it’s good to check for pre-qualification to see approval odds and estimated rates. Borrowers can do that with WalletHub’s free pre-qualification tool and then apply for the loan on the issuer’s website.
Approval: Lenders should usually come to a decision within 7 business days of receiving a personal loan application.
Loan funding: The lender gives a lump sum of money to the borrower, usually as a direct deposit to a bank account but sometimes as a check. It typically takes only a few business days after approval to receive the funds.
Home improvement: The borrower can used his or her personal loan to purchase the home improvement goods and services needed to complete the job.
Payoff: The borrower must make a set minimum payment each month until the loan is paid off. The total cost of the loan will include interest and any applicable fees.
It’s useful to note that while most “home improvement loans” are just personal loans used for the purpose of home improvement, there are other types of loans you can use for home improvement as well.
Another type of loan commonly used for home improvement is a home equity loan. Like a personal loan, a home equity loan can be used to pay for just about anything. The difference is that with a home equity loan, your home serves as collateral and could be foreclosed on by the lender if you default. But that risk comes hand in hand with the benefits of low APRs and the potential for large loan amounts.
There are also home equity lines of credit, which don’t give you a lump sum at the beginning but let you withdraw up to a certain amount whenever you want, like a credit card.
Finally, you might consider getting a government-backed loan for home improvement. The Federal Housing Administration offers “Title I” loans, which can be used for anything that makes your home “more livable and useful.” The loan is usually secured by your house if you borrow more than $7,500 and unsecured otherwise. The payoff period is 20 years for a single-family house, and you’ll need a debt-to-income ratio of 45% or lower to qualify. Other government-backed options for home projects include Energy Efficient Mortgages for improving the home’s energy use and Single Family Housing Direct Loans from the USDA for people in rural areas. The latter can be used to either purchase a home or renovate one.
WalletHub Answers is a free service that helps consumers access financial information. Information on WalletHub Answers is provided “as is” and should not be considered financial, legal or investment advice. WalletHub is not a financial advisor, law firm, “lawyer referral service,” or a substitute for a financial advisor, attorney, or law firm. You may want to hire a professional before making any decision. WalletHub does not endorse any particular contributors and cannot guarantee the quality or reliability of any information posted. The helpfulness of a financial advisor's answer is not indicative of future advisor performance.
WalletHub members have a wealth of knowledge to share, and we encourage everyone to do so while respecting our content guidelines. This question was posted by WalletHub.
Please keep in mind that editorial and user-generated content on this page is not reviewed or otherwise endorsed by any financial institution. In addition, it is not a financial institution’s responsibility to ensure all posts and questions are answered.
Ad Disclosure: Certain offers that appear on this site originate from paying advertisers, and this will be noted on an offer’s details page using the designation "Sponsored", where applicable. Advertising may impact how and where products appear on this site (including, for example, the order in which they appear). At WalletHub we try to present a wide array of offers, but our offers do not represent all financial services companies or products.