Best Home Improvement Loans of December 2024

Best home improvement loans

One of the most important factors in finding the best home improvement loan is how much you need to borrow. If you’re doing a major renovation that requires more than a $50,000 loan, there will be fewer lenders for you to choose from, so you need to know where to look. It’s also crucial that you can afford to repay any loan you take out, which makes a longer repayment term ideal for budgeting large home improvement projects. 

The top lenders below offer loan amounts up to at least $50,000, and a few offer loans up to $100,000 or more. While most repayment terms cap out at seven years, some of the best home improvement loans below have repayment terms as long as 12 years.

Methodology

Credible evaluated the best personal loan lenders for home improvements based on factors such as customer experience, minimum fixed rate, maximum loan amount, funding time, loan terms, fees, discounts, and whether cosigners are accepted. Credible’s team of experts gathered information from each lender’s website, customer service department, in-house resources, and via email support. Each data point was verified to make sure it was accurate at the time of publication.

What are home improvement loans?

Home improvement loans are taken out for the purpose of funding home improvement projects, like remodeling an outdated kitchen or replacing old flooring. Many different types of loans can be considered home improvement loans, including personal loans, home equity loans, home equity lines of credit (HELOCs), and cash-out refinance loans.

The type of home improvement loan that’s best for you will, in part, depend on what types of loans you can qualify for and if you want the lowest rate at all costs. For example, you’re likely able to get a lower rate on a home equity loan or HELOC because the loan is secured by your home (meaning the lender can take it if you default).

With a personal loan, however, the rate is likely to be higher because most personal loans are unsecured. This means that if you default, your home is not in jeopardy. If you have a fair or bad credit score, applying for a home equity loan or HELOC might be your best shot at getting a reasonable rate.

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How do home improvement loans work?

The way a home improvement loan works will depend on the type of loan you get. However, all have the following components:

• Loan term: The loan’s term is the span of time over which you’ll pay back the amount borrowed, except in the case of a HELOC. A HELOC includes both a draw period, during which you can use the credit line as needed, and a repayment period, during which you’ll repay the amount borrowed.
• Annual percentage rate (APR): The APR accounts for the interest rate and any upfront fees, like an origination fee, that you might pay to borrow money. This makes it a better measure of loan cost than the interest rate alone.
• Fees: Loans may come with additional fees, such as closing costs origination fees. Note that an origination fee is often deducted upfront from the loan amount — which means you’d receive less than the dollar amount you borrowed.
• Loan-to-value ratio (LTV): When your property acts as collateral on a home improvement loan, the LTV percentage determines how much of your home’s value you can borrow.

Here’s a closer look at how the most common types of home improvement loans work.

Personal loans

Personal loans typically unsecured installment loans. Companies lend you a lump sum and you repay it, plus interest and fees, over a set period. The loan amount, loan term, interest rate, and amount you receive will depend primarily on your income and credit profile.

In general, loan amounts range from under $1,000 to over $100,000, and loan terms range from one to seven years or more. For example, Lightstream lets you take out a 12-year personal loan to pay for home improvements.

The average APR on a 24-month personal loan was 12.17% in August 2023 (the most recent data), according to the Federal Reserve. APRs generally range from 5% to 36% at the time of publication, and origination fees (when charged) can be as high as 12% of the loan amount.

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Home equity loans

Home equity loans, also called second mortgages, are secured installment loans backed by the equity you have in a home. Lenders require an appraisal of your home to assess its current fair market value and then will determine the amount you can borrow based on their LTV guidelines — you can often borrow up to 85% of your home’s equity.

Like a first mortgage, home equity loans have interest charges and closing costs. The interest rate you get will depend on your credit profile and loan length, while closing costs are often 2% to 6% of your loan amount. Loan terms generally range from five to 30 years.

Home equity lines of credit (HELOCs)

HELOCs, like home equity loans, are backed by the equity you have in your home. You can often borrow up to 85% of your home’s equity. However, instead of a lump-sum loan that’s repaid over a set term, HELOCs give you access to a credit line that you can use as needed for a set term — typically 10 years.

During the draw period, you can withdraw funds up to your credit limit and lenders may only charge you interest on the outstanding amount. Once the draw period ends, the repayment period begins, which generally lasts up to 20 years. Some HELOCs don’t have closing costs, while others may charge an origination fee, for example.

Cash-out refinance loans

Cash-out refinance loans involve refinancing your existing mortgage into a new, larger loan and cashing out the difference. You can often borrow up to 80% of your home’s value. A cash-out refinance has closing costs, a new interest rate, and a new term (typically of 30 years).

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How to choose the best home improvement loan

To find the best home improvement loan for your situation, it’s important to consider all of your options and weigh the pros and cons.

Personal loans

While unsecured personal loans are often the fastest and most convenient option — you can apply online, get approved, and have the money in your account as soon as the same day — your interest rate could be higher relative to a home-equity based loan, especially if you have bad credit.

You’ll need to meet a lineup of eligibility requirements, which generally include a minimum credit score, income, debt-to-income ratio, and more. These tend to be more stringent than the requirements for secured loans since there’s no collateral for the lender to collect if you default.

To get the best home improvement loan rates on a personal loan, it’s essential to shop around and prequalify with multiple lenders. Prequalification gives you an idea of the loan amounts and terms you might qualify for, but doesn’t impact your credit. Compare loan quotes for the lowest APRs, the most suitable loan amounts, a repayment term that fits your project, and a monthly payment you can comfortably afford. If a lender denies your application, consider enlisting the help of a cosigner with good credit or opting for a secured alternative.

Equity-backed loans

Home equity-backed loans take a bit more time and paperwork, but in exchange, you may be able to tap into higher loan amounts, lower interest rates, and more lenient eligibility requirements. With your home acting as collateral for the loan, lenders face less risk, which means they’re able to approve borrowers with lower credit scores.

However, when considering home equity loans, HELOCs, and cash-out refinances, be sure to factor in the closing costs, which can add 2% to 6% of the loan amount to your costs. As with personal loans, rates and fees often vary between lenders, so it’s in your best interest to compare multiple lenders that might be a good fit.

How to get a home improvement loan

Ready to move ahead with a home improvement loan? The first step is to check your credit score and budget. Doing so will help you determine which loans you’re most likely to get and the monthly payment amount you can afford.

If you opt for a personal loan, the application process is relatively easy. Most applications ask for general information including your name, birth date, address history, employment history, income, and Social Security number. You may need to provide supporting documentation — such as pay stubs or tax returns — to prove your income, and a utility bill to prove your address.

If you opt for a home equity-backed loan, the process is more involved. Along with proof of your personal and income information, you’ll often need to provide your homeowners insurance declarations page, property tax statement or mortgage statement, and your flood insurance declaration (if applicable). Additionally, your home will typically need to undergo an appraisal.