Home Improvement Loans: How to Choose a Loan for Home Renovations



Maybe you’ve spent too much time watching HGTV and now have visions of turning your kitchen into a chef’s paradise. Or perhaps your master bath is just one shower away from disaster.

If so, you’re not alone. Last year, the Joint Center of Housing Studies for Harvard University reported that the home improvement industry should continue post record-level spending in 2016. For many people, that means borrowing money to pay for those home improvements.

So which home improvement loan is right for you? Many homeowners look to tap the equity in their homes. But home equity loans or home equity lines of credit (HELOC) may not be possible or practical for some borrowers. In that case, consider using a personal loan.

While you can use a personal loan for a variety of reasons, there are a few reasons why a personal loan can have advantages over home equity loans or HELOCs when it comes to a renovation loan specifically.  

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The application process for a personal loan is usually pretty straightforward. Your own financial situation—e.g., your credit history and earning power—is often the main deciding factor for whether or not you’ll get a loan, for how much and at what interest rate. Some personal loans even boast no origination fees.

Home equity loans and HELOCs, on the other hand, are akin to applying for a mortgage loan (in fact, home equity loans are sometimes called second mortgages). How much you can borrow depends on several factors, including the value of your home. Because you can only borrow against the equity you already have (i.e. the difference between your home’s value and your mortgage), you may have to arrange – and pay for – a home appraisal. 

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With a home equity loan or HELOC, you can only borrow against the equity you have – which, as a new homeowner, is probably not much. You haven’t had enough time to chip away at your mortgage and the market hasn’t yet elevated your home’s price. A personal loan lets you start home improvements regardless of how much equity you have.

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With a home equity loan or HELOC, you use your home as collateral, which means an inability to repay could result in your home going into foreclosure. While failing to pay your personal loan carries its own risks (like ruining your credit), it’s not tied to the roof over your head.

 
So how do you decide?

Personal loans may not be right for every borrower looking for a home improvement loan. For example, if you have significant equity in your home and are looking to borrow a large amount, you might be able to save money with lower interest rates on a home equity loan or HELOC. Also, interest payments on home equity loans and lines of credit can be tax deductible under certain circumstances – that’s not the case with personal loans.

On the other hand, personal loans can make sense for:

*Recent homebuyers
*Smaller home improvement loans (e.g., bathroom or kitchen as opposed to full remodel)
*Borrowers in lower home value markets (if your home value has barely budged since you moved in, you may not have much equity to draw on for a home equity loan)
*Those who value ease and speed
*Borrowers with great credit and cash flow

While home equity loans and lines of credit are a good source of home improvement money if you’ve built up equity in your home, a personal loan may be a better alternative if you’re a new homeowner and need to take care of a few updates to make your new home just right.

Editor’s Note: This is an updated version of a post we originally published in July 2015. We welcome new comments and questions below.

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ABOUT Dan Macklin Twitter: @macklindan Dan Macklin is a co-founder of SoFi and VP of Community & Member Success with responsibility for maximizing the overall experience for SoFi’s growing community of members. Dan holds an M.S., Management degree from the Stanford Graduate School of Business where he was a Sloan Fellow. He also holds a B.A. in Business Economics from University of Durham in England.


25 thoughts on “Home Improvement Loans: How to Choose a Loan for Home Renovations

  1. I was able to find good info from your articles.

  2. Thanks for another informative blog. Where else may just I
    am getting that type of information written in such an ideal means?
    I have a undertaking that I’m simply now operating on, and I have
    been on the look out for such info.

  3. I need information on getting a loan with the credit history that looks a little down. I am a mother of 8 young children that are residing in a hotel room since I was evicted by my landlord a day before thanksgiving. I am currently a student at the UOP working toward my B.A. in HCA. I hit a hard road that knocked me off my feet really bad. I still keep my head up because I have so many lives that depends on me, in which I will not let down. I have been looking for a job in my field, I am a graduate with an Associates Degree, but being that my transportation gave up on me months ago I am not out going to any interviews. It has been a hard year for me, I know there is a turning point that is why I smile and continue to be joyful. Owning a home for my family is a dream that I will accomplish in the next couple of years I just need to find a head start, the motivation is here.

    • Hi Kimberly,

      Thanks so much for leaving a comment and sharing your story. Everyone’s situation is different, and our Customer Service team would be happy to speak with you about your specific circumstances and to tell you more about SoFi’s products. You can reach them at (855) 456-7634.

      We also have some other blog posts under the Careers Category that you might be interested in during your job search. We wish you the best of luck!

  4. Does SoFi do personal loans for education? One of my kids is currently in school, but cannot continue because the Federal Student Aid loan does not cover his basic expenses (Tuition and housing) and he will owe the school money after this quarter.

    • Hi Robert,

      Thanks for reading our blog and reaching out to us! SoFi’s personal loan products are not designed for use to pay for education, you can read our FAQ page here. To learn about SoFi student loans and how they work, you can contact our Customer Service team at (855) 456-7634.

      Best of luck to you and your son!

  5. Brian Morrissey says:

    I am looking to consolidate my student loans . Please contact me.

  6. Junior Beckford says:

    Nee need money to repair roof

  7. willy javier says:

    need money for home improvement

  8. tanishagarg says:

    great and innovative blog ..
    thanks for sharing

  9. tanishagarg says:

    great blog

  10. tanishagarg says:

    great blog..
    thanks for sharing

  11. We have already started the remodel on our home. Is it too late to apply for a home equity line of credit. One bank lender told us they could not do the line of credit because we had already begun the remodel. We had started the loan process and had been told we were approved pending appraisal. Then in conversation I mentioned the contractors at my house and the lender said we could not proceed with the line of credit if we had already begun the remodel. We have excellent credit, virtually no debt, and solid incomes. We can do the personal loan but the interest rate on the HELOC was very appealing.

    • David Gardner says:

      Hi Jo Ann, thanks for your comment. If you’re interested in a persona loan, check out the link below the article and we’d be happy to address any additional questions you might have.

  12. Hi need information about how to apply for a loan to pay off loans on the Hero program. Thsnk you.

  13. Woahhh! This was more informational than all the other boogos articles I’ve read to help me understand these two options better. Short, to the point, clear and sweet. Thank you.

  14. And tell allen says:

    What do my credit score have to be

    • Hi Allen – While most of our borrowers have credit scores over 700, we are able to approve people with scores below 700 because we look at lots of other factors too, like your education, career, financial history, and income relative to expenses.

  15. Is there a credit rating cap? Meaning less that 650. Or above 650?

    • Hi AMC – While most of our borrowers have credit scores over 700, we are able to approve people with scores below 700 because we look at lots of other factors too, like your education, career, financial history, and income relative to expenses.

  16. For home remodeling money never gone be enough but your idea will help.

  17. Christopher T says:

    What would allow someone to obtain a rate 5.99%..Is it based on the borrowing amount

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