Renovations are expensive. Whether it's a kitchen remodel, building a swimming pool or replacing a roof, many homeowners prefer to borrow money in order to finance these home projects. The best way to do this is to choose the right home improvement loan option - with the best home improvement loan rates.
Home improvement loans are widely popular as they allow homeowners to upgrade their properties without spending their emergency funds or retirement savings to cover the cost of the home improvement projects. And they don't have to use their home as collateral if they opt for unsecured personal loans.
A home improvement loan is usually an unsecured personal loan that you can use to finance your home repairs, renovations or additions. You can get the funds from most banks, online lenders and credit unions. Home improvement loans allow you funding up to $100,000. They typically have a fixed interest rate and a fixed monthly payment. Using a home improvement loan is a great way to increase the livability, curb appeal and value of your home.
Average home improvement loan rates range from 6% to 36%, depending on your credit score and credit report. The rule of thumb is, the higher your credit score, the lower your interest rate will be.
You can use home improvement loans for large-scale upgrades such as a kitchen remodel, a bathroom renovation, a complete roof replacement, financing solar panels or adding a new deck.
Although you could use your credit card or even take the route of in-store financing, a home improvement loan is one of the most convenient ways to pay for larger home projects.
With proper research, you can find the most competitive rates on the market. Once you determine the scale and type of your home project, the timeline and renovation cost, it's time to apply for a loan.
While most lenders have a minimum credit score requirement when determining your loan eligibility, it's still worth going through the process of prequalification. Keep in mind that they may also look at factors such as your annual income and employment status.
Here's a list of documents you should have ready when applying for a home improvement loan:
Your personal information, including Social Security number, proof of income, employment history and employer information.
Your credit score as well as credit history. Remember that borrowers with the best credit scores get the most favorable rates.
A complete list of your other monthly payments for debts, such as car loans, student loans and credit card payments.
Your debt-to-income ratio, which is calculated by dividing your total monthly debt payments by your monthly income.
The cost and scale of your project. It's never a good idea to borrow more money than you need.
Most home improvement loans will depend on your credit score and financial situation to a large extent. If you're using your home as equity for the loan, your home improvement loan amount could be as much as 90% of the market value of your property.
The type of home improvement loan you will opt for depends a lot on the scale and cost of your project. For instance, while a short-term personal loan might be the best option for smaller projects, you may want to tap into your home's equity for a major remodeling project.
You need to shop for a home improvement loan that works best for you. The first step is to compare offers from different lenders, including banks, credit unions and online marketplaces.
Since the terms and conditions for home improvement loans vary a great deal, be sure you look for the best possible ones on your home improvement loan - no matter which type of loan you're considering.
The best home improvement lenders should be willing to offer you:
Lowest interest rates: While those with an excellent credit will typically get the lowest rate, you need to do your part and ensure that you aren't paying any more interest than necessary.
Largest loan amount: If you're looking to finance a huge renovation, you'll need a significant amount of money. Find a lender who offers you as much as you need to cover all costs.
Fewer fees: Many lenders charge an origination fee and other miscellaneous fees, over and above your principal and interest payments. Watch out for these when considering a lender.
Easy repayment terms: Decide whether you want a shorter loan term with higher monthly repayments or a longer term with lower monthly repayments. Keep in mind that you'll pay more interest over the life of the loan with a longer term loan.