Home Remodeling Loans With Low- or No-Interest Financing

A popular way to finance a large home improvement project is with a home equity loan line of credit or an FHA 203(k) loan. Another way to finance smaller projects is with cash: pulling it from savings or hopping from one no-interest credit card offer to another.

Even with financing, sprucing up your home takes a lot of money. However, people who can’t access these traditional sources may qualify for a different and highly affordable home remodeling loan. A zero-interest home remodeling loan may be available in your community.

This type of loan doesn’t come through the federal government but from the agencies associated with transit, property taxes, licensing, roads, and courts: your local county government. Some counties work directly with lenders to offer these loans. Best of all, some loans are interest-free.

What Are These Programs?

Names differ from county to county, but they often go under the name of Home Improvement Program (“HIP”), home repair/improvement assistance, or a similar name. Some examples:

• The Redevelopment Authority of Allegheny County in Pennsylvania, for instance, has the Allegheny Home Improvement Loan Program.
• King County, Washington, offers grants and loans through the Department of Community and Human Services.
• In Hennepin County, Minnesota, residents can apply for up to $30,000 in no-interest home repair loans.

Under these programs, low-income homeowners take out a loan for home improvement purposes, and counties agree to subsidize the loan. Terms and eligibility vary depending on the government agency administering the program.

How Much Money You Can Save

Those who qualify will likely find it’s worth the red tape involved in applying because it lets them fund a home improvement project at considerable savings. In one common scenario, a county might subsidize 350 basis points of your loan’s interest rate. Some counties help arrange 0% loans for some projects, such as boosting a home’s energy efficiency.

Let’s run the numbers for a partially subsidized loan. This example of a five-year $20,000 loan compares your costs with and without an interest rate reduction of 350 basis points.

• Without the subsidy: With a 4.5% interest rate, you will pay about $372 per month. Total interest is $2,371.
• With the subsidy: With the interest rate at 1%, you will pay about $341 per month, for a savings of about $30 per month. Total interest is $512.

By taking out the HIP-style loan, you would save $1,859 in interest.

Why Counties Do This

Counties have a mandate to serve their residents, especially low-income families. On a larger scale, counties are interested in maintaining the value of housing stock. When housing stock declines, the overall quality of life declines. Finally, providing these loans drives the economic machine by helping create projects that create jobs.

How Much Can You Borrow?

A typical borrowing cap is around $25,000 to $50,000. It is rare to find HIP loans in the six figures. Some areas offer matching funds up to a specified limit.

Requirements

Eligibility usually is determined by your income and the value of your home. Typical requirements:

• Your annual gross income must be below a certain limit. 
• Your house must be valued below a certain limit. 
• You must let the program administrator monitor the project.
• All county taxes must be paid in full.
• You cannot use the money to pay off other loans, even if those loans are house-related.
• You cannot use the loan money to pay for projects begun before the time that the HIP loan is approved.
• You must complete the project within a certain time period, such as one year.

Things You Cannot Use the Money for

Typically you are barred from financing cosmetic projects or luxury projects as swimming pools, satellite dishes, hot tubs, decks, and so on. Some counties put limits on the types of appliances you can purchase with the loan, allowing only permanent ones (a furnace vs. a refrigerator, for example). 

Loans are intended to rehabilitate structures, modernize any outdated issues, or correct violations, not purchase a new property or finance construction. Note, though, that some counties do have similar programs to help homeowners purchase properties.

Where to Find Programs

There’s no guarantee your county will have this program. You might find one under social services, housing, or community development departments on your local county’s website. If searching within the county, use the words “housing improvement,” “HIP,” or “repair assistance.” In a web browser, you might try searching for “low-cost home improvement” + “loan” + your county’s name.

In addition, the Section 504 Home Repair program, administered by the U.S. Department of Agriculture, provides up to $40,000 in repair loans and $10,000 in grants (if you are 62 years or older) on a state-by-state basis.

The Bottom Line

Programs that offer home improvement loans with zero interest can be found in some counties. They typically have eligibility requirements that include maximum incomes based on household sizes. There also typically are limitations on what the funds can be used for. The best ways to find these programs is to check with your local county government.