Home improvement loans are personal loans you take out through a bank, credit union, or online lender to fund renovations and repairs. You typically need a good credit score and a low debt-to-income (DTI) ratio to qualify for a home improvement loan.
With an aging housing supply,[1] the home improvement industry is booming, with 53% of Americans planning to spend $5,000 or more on renovations in 2025 according to a Clever study. But saving for such costly home improvements can be difficult, which is why many will seek to finance their projects with a home improvement loan.
Unlike home equity lines of credit (HELOCs) or home equity loans, a personal loan for home improvement doesn’t require you to put your home up as collateral, so it’s less risky if you can’t repay it. But you’ll also have a higher interest rate and a longer repayment term, which usually means a higher monthly payment and more money spent on financial fees.
When it comes to a home renovation loan, there’s a lot to consider. Here’s what you need to know.
🏡 Looking to sell or just get advice on home improvement loans? A local real estate agent or mortgage professional can help. Clever Real Estate vets agents from top brokerages nationwide to save you the hassle of finding someone reliable. And they can help you determine which repairs to prioritize and which ones to skip. Talk with Clever today.
What is a home improvement loan?
A home improvement loan is a financing option that comes as a lump-sum payment that you can use to repair, renovate, or upgrade your house. You’ll repay the loan with interest over time.
Personal loans for home improvement can be used for nearly any home project, big or small. This includes everything from major renovations or remodeling to updating fixtures and landscaping. The good thing about a personal home improvement loan is its flexibility—there are no restrictions on how you can use the funds.
A personal home improvement loan is unsecured, meaning you don’t have to put up collateral. Lenders consider your creditworthiness and income to determine whether you qualify.
Home improvement loan types
Personal home improvement loans are among the most common types of renovation loans, along with HELOCs and home equity loans. Here’s how they compare:
| Personal loans | HELOCs | Home equity loans | |
|---|---|---|---|
| Loan limits | $50,000–100,000 | Up to 85% of your home equity | $2,000–$1 million |
| Average rates | 12.58% | 8.12% | 8.23% |
| Repayment timeline | 1–7 years | 25–30 years | 5–30 years |
| Collateral needed | None | Your home | Your home |
| Credit requirements | 670 for best rates | 620–680 | At least 600 |
| Fees | No closing costs; may charge other fees | 2–5% in closing costs; may charge other fees | 2–5% in closing costs; may charge other fees |
You can also get government-backed home improvement loans through the Department of Housing and Urban Development (HUD).[2] Eligibility requirements vary by loan program and may depend on your income level, age, property type, and location.
Government-back home improvement loan programs include the following:
- VA renovation loan: This enables active military members, veterans, or eligible spouses to finance the purchase of a fixer-upper and the completion of necessary repairs.
- HUD Title 1 property improvement loan: Loan amounts and repayment terms are based on the type of property you have.
- FHA 203(k) loan: Buyers and current homeowners can finance the purchase (or refinance) of a home and roll the cost of eligible repairs or improvements into the same mortgage.
- Home Equity Conversion Mortgage (HECM) for seniors: Homeowners age 62 or older can withdraw some of their home’s equity and use it for maintenance or repairs.
Pros and cons of popular home improvement loans
About 63% of homeowners have gone into debt to pay for a renovation. If your project will cost tens of thousands of dollars, it’s crucial to compare loan terms to ensure you’re not taking on more than you can afford.
Each of the three main types of home improvement loans — personal loans, HELOCs, and home equity loans — has advantages and disadvantages.
Personal loan | HELOC | Home equity loan | |
|---|---|---|---|
|
Pros | • Collateral-free • Flexibility for use • No closing costs • Fixed interest rate • Quick approval and funds release | • Revolving line of credit • Low interest rate • Larger loan amount • Low monthly payments during draw period • Can deduct interest from taxes • Flexible borrowing options | • More affordable monthly payment • Longer repayment terms • Low interest rate • Can borrow a larger amount • Can deduct interest from taxes |
|
Cons | • High interest rate • High credit score needed to qualify • Loan amounts are limited • Must pay origination or other fees • Adds to your debt • High monthly payments • Short repayment period | • Your home is collateral • Payments can fluctuate • Approval can take 2–6 weeks • Closing costs (2–5%) • Payments go up after draw period • Reduces your home equity | • Home used for collateral • Must have 15–20% home equity • Closing costs and other fees • Long application process • Must have home appraised |
How to get a home improvement loan
For most home improvement loans, you’ll need the following to qualify:
- A good credit score — 670 or higher for the best rates
- A low debt-to-income (DTI) ratio — 36% or less
- Reliable income
- A valid ID
- Proof of residence
Determine how much you need to complete the repairs or renovations, and borrow the smallest amount possible. This is a new debt you’ll have for years, so borrow only what you can afford to repay.
Get prequalified with multiple lenders — preferably, a mix of banks, online lenders, and credit unions. They’ll do a soft credit check to make sure you’re eligible and see what rates and terms are available to you. Shop around to get the best loan for your budget.
When you’ve found the loan, rate, and terms that work for you, apply for the loan with that lender. This will trigger a hard credit check, so don’t make any large purchases during this process.
Once approved, you’ll sign the loan documents and receive the funds to start your home renovation.
Home improvement loan alternatives
A personal loan isn’t the only way to pay for your home improvements. As user Triscuitmeniscus pointed out on Reddit, “Examine the terms of the loans you qualify for, figure out the total cost (including interest) of the repairs, then ask yourself, ‘Is it worth spending $XX,000 to have this work done? Will we be able to pay it off without our quality of life decreasing?’”[3]
Consider these alternatives before you take out a home improvement loan:
Build up your savings
If you’re in no real rush to make these repairs, consider putting them on hold until you can save more money. If saving up for the work will be difficult, use this time to improve your credit score instead, which can help you qualify for better terms and rates and lower your monthly payment.
Ask family or friends for a loan
If you have family members or friends in a better financial position, see if they might be willing to lend you the money. But only use this option if you’re sure you can repay them, as you don’t want to risk hurting a personal relationship. Create a repayment plan that you both agree to and stick with it.
Try a cash-out refinance
A cash-out refinance is basically a new home loan. You’ll borrow more than what you currently owe, pay off your original mortgage, then use the difference to pay for your home improvements. The amount you qualify for will depend on your home equity. However, you could end up with a higher interest rate, and you’ll have to pay about 2–6% in closing costs.
Get an FHA 203(k) loan
An FHA 203(k) loan is backed by the Federal Housing Administration. It lets you roll your renovation costs into your mortgage either when you purchase the home or through a refinance. These loans typically come with lower credit score requirements—at least 580, although some lenders will approve scores as low as 500.
Look for grants
There are state and federal grants available for home improvements, depending on your situation. Many grants for repairing a home will prioritize low- and very-low-income homeowners, the elderly, military members/veterans, Native American homeowners, or those impacted by natural disasters or other emergencies.
If someone in your home has a disability, there are loan and grant options that enable you to make the necessary repairs to make your home both safe and accessible. Check out these seven home repair grants for households with disabilities.
Sell your home as-is
If you’re preparing to put your home on the market, consider selling your house as-is instead. Renovations don’t always add value to your home — some buyers would prefer concessions instead. A real estate agent can help you determine the best home improvements for resale so you don’t waste precious time and money.
Is a home improvement loan right for you?
Whether a home improvement loan is right for you will depend on your financial situation and what repairs you want to make with it. If you can afford to take on additional debt and repay the loan, it may be worth it. However, it’s often wise to explore other financial options first before taking out additional debt, especially if the repairs aren’t urgent.
If you’re looking to sell your home, talk with a realtor first. They can point you toward the renovations that matter most to potential buyers — and help you avoid those that add little to no value.
Clever can match you with a local agent who knows what buyers in your area want. Simply answer a few questions and connect with a vetted Clever realtor today at no cost to you.