A home improvement loan is not called anything in particular, but several different types of loans can actually be called home improvement loans, including personal loans, home equity loans, and FHA 203(k) rehab loans. Each can help you finance home repairs or improvements, such as fixing a roof or building a deck. You can also use a home equity line of credit, a credit card, or a loan from a friend or family member to finance home improvements.
Types of Home Improvement Loans
Home improvement loans
Home improvement loans are general-purpose personal loans, but with a different name. The best home improvement loans offer large amounts of funding, low minimum APRs and long repayment periods.
Personal loans are installment loans that can be used for almost anything, including home improvements. The best personal loans offer up to $100,000 in funding, APRs around 4% - 36% and repayment periods of 12 - 84+ months.
Home equity loans
Home equity loans let you borrow a portion of your home’s equity, which is your home’s value minus your mortgage balance. You will need to use your home as collateral, though, so you could lose your home if you don’t repay the loan.
FHA 203(k) loans
FHA 203(k) loans are government-backed mortgages that can be used to purchase a home and to do renovations. They are good for people with sub-par credit since they require a lower credit score than conventional mortgages. These loans have a lower down payment requirement than conventional mortgages, too, but you will need to purchase FHA mortgage insurance. This insurance protects the lender from losing money if you default.
Other Ways to Finance Home Improvements
Home equity lines of credit
Home equity lines of credit let you borrow up to a certain amount at will like a credit card. Your home will be used as collateral, though, so if you don’t repay the balance, you risk losing your home.
If your project isn’t too expensive, you may be able to pay for it with a credit card. It’s smart to repay your balance within the card’s 0% introductory APR period, if it has one. You’ll need good credit or better for the best chances of getting approved for a 0% credit card.
Loans from friends or family members
Borrowing from a friend or family member may get you better terms than a conventional loan. Keep in mind that if you don’t repay the loan, you may strain your relationship.
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