Your home is an investment, and home improvement loans can offer the funding you need to strengthen that investment with renovations, updates and repairs. However, there are risks involved, and not all home improvement loans are the same.

This guide covers the types of home improvement loans available, the costs of a home improvement loan, how to qualify and how to choose the best lender. It is designed to help you decide if accessing your home’s equity or taking out a personal loan for home improvement is a good choice, and offer insight into how you can find the best loan for your needs.

What Are the Best Home Improvement Loans of 2020?

U.S. News conducted an in-depth review of the leading U.S. mortgage, home equity and home improvement lenders. Lenders were evaluated based on product availability, customer service ratings (using J.D. Power’s 2018 U.S. Primary Mortgage Origination Satisfaction Study), qualification requirements and loan terms. There is no home improvement loan that is perfect for everyone, so the top performers were recommended based on the strengths in these key areas.

These recommendations are meant to support your research by showing you the company most likely to meet your needs. They are a good starting point for most people, but you should thoroughly research each company.

Recommendations are divided into two categories: home equity loans and personal loans. These recommendations don’t apply to home equity lines of credit, cash-out refinancing or reverse mortgages, which many of these lenders also offer.

The Best Home Improvement Home Equity Loans

  • Bank of America: Best Lender for HELOC With No Annual Fee

  • Chase: Best Lender for Up to $3,000 Cash at Closing With a Grant and Education Course

  • Discover: Best Lender for Zero Cash Due At Closing

  • Flagstar Bank: Best Lender for Loans Up to $3 Million

  • Guild Mortgage Co.: Best Lender for Online Mortgages

  • loanDepot: Best Lender Lifetime Guarantee With Waived Lender Fees On Any Future Refinance

  • NBKC Bank: Best Lender for $5,000 Close On Time Guarantee

  • Spring EQ: Best Lender for Up to 100% of Your Home’s Appraised Value

  • Triumph Bank: Best Lender for Online Rate Quotes And Application

Best Lender for HELOC With No Annual Fee

A major financial institution serving homeowners nationwide, Bank of America has good customer satisfaction ratings. The bank has an A+ Better Business Bureau rating and a J.D. Power rating of four, which is better than most.

Highlights:

  • Mortgage types offered: Conventional, VA, FHA, refinance, home equity
  • Minimum FICO score: 620
  • Maximum loan-to-value ratio: 100%
  • Maximum debt-to-income ratio: 55%
  • Loan amounts: Up to $5,000,000
  • Total closing costs: Varies
  • J.D. Power overall satisfaction rating: Four out of five

Best Lender for Up to $3,000 Cash at Closing With a Grant and Education Course

Chase Bank is a major financial institution with several mortgage options, including adjustable-rate mortgages. Borrowers can choose from 5/1, 7/1 and 10/1 ARMs.

Highlights:

  • Mortgage types offered: Conventional, jumbo, ARM, VA, FHA
  • Minimum FICO credit score: 620
  • Maximum debt-to-income ratio: 50%
  • J.D. Power satisfaction rating: Three out of five

Best Lender for Zero Cash Due At Closing

Discover offers personal loans for debt consolidation, home improvement and major purchases. Loan terms from three to seven years are available.

Highlights:

  • Minimum FICO credit score: 620
  • Maximum debt-to-income ratio: 43%
  • Maximum combined loan-to-value ratio: 70%-95% of the property value depending on credit, lien position, and loan amount; 70%-80% in Texas
  • J.D. Power satisfaction rating: Not rated

Best Lender for Loans Up to $3 Million

Flagstar offers banking and loan products to borrowers in all 50 states. Borrowers can obtain mortgage and home equity products including conventional loans, FHA loans, VA loans, ARM loans, USDA loans, and home equity loans and lines of credit.

Highlights

  • Mortgage types offered: Conventional, Home equity loans, Home equity line of credit, ARM, FHA, VA, USDA, Refinance, and First-time homebuyer program
  • Minimum FICO score: 500
  • Max LTV: N/A
  • Max DTI: N/A
  • Closing costs: 2% to 5%
  • Equity required: N/A
  • J.D. Power satisfaction rating: Two out of five

Best Lender for Online Mortgages

Guild Mortgage serves homebuyers nationwide with multiple mortgage options. Mortgage shoppers can choose from conventional or agency loans with this lender, which has an A+ BBB rating and a four out of five J.D. Power satisfaction rating.

Highlights:

  • Mortgage types offered: Conventional, FHA, VA, USDA, ARM, Home equity loans, Refinancing (conventional), Refinancing (FHA), Refinancing (VA), Refinancing (USDA), First-time homebuyer program, Jumbo, renovation, expanded (non-qm)
  • Minimum FICO credit score: 620
  • Maximum debt-to-income ratio: 50%
  • J.D. Power satisfaction rating: Four out of five

Best Lender Lifetime Guarantee With Waived Lender Fees On Any Future Refinance

LoanDepot was established in 2010 and since then has financed more than $70 billion in mortgages. It offers FHA, conventional and other mortgage options. Borrowers may qualify for a loan with a FICO credit score as low as 580.

Highlights:

  • Mortgage types offered: Conventional, FHA, VA, ARM, Refinancing (conventional), Refinancing (FHA), Refinancing (VA), Home equity loans
  • Minimum FICO credit score: 500 with conditions
  • Maximum debt-to-income ratio: 43% for FHA
  • Maximum combined loan-to-value ratio: 90%
  • J.D. Power satisfaction rating: Four out of five

Best Lender for $5,000 Close On Time Guarantee

NBKC Bank is a Kansas-based mortgage lender. It originates home loans in all 50 states.

Highlights

  • Mortgage types offered: Conventional, FHA, VA, ARM, Home equity loans, Home equity lines of credit, Refinancing (FHA), Refinancing (VA) and Refinancing (Refi Plus)
  • Minimum FICO score: N/A
  • Max LTV: 85%
  • Max DTI: N/A
  • Closing costs: N/A
  • Equity required: N/A
  • J.D. Power satisfaction rating: N/A

Best Lender for Up to 100% of Your Home’s Appraised Value

Spring EQ is a Philadelphia-based home equity lender. Home equity loans are available in more than 30 states and the District of Columbia, and Spring EQ has plans to expand into more.

Highlights

  • Mortgage types offered: Home Equity
  • Minimum FICO score: N/A
  • Max LTV: 100%
  • Max DTI: N/A
  • Closing costs: N/A
  • Equity required: N/A
  • J.D. Power satisfaction rating: N/A

Best Lender for Online Rate Quotes And Application

Triumph Bank is a Tennessee-based community bank offering direct home loans in 39 states. In addition to conventional mortgage financing, Triumph Bank also offers a variety of government-backed home loan options.

Highlights

  • Mortgage types offered: Conventional, FHA, VA, USDA, The Elite Rate Mortgage (TERM), Triumph 97, Jumbo, Custom Term Mortgages, Home equity loans, Home Equity line of credit, and Refinancing (Cash out)
  • Minimum FICO score: N/A
  • Max LTV: 97.75%
  • Max DTI: N/A
  • Closing costs: N/A
  • Equity required: N/A
  • J.D. Power satisfaction rating: N/A

Best Features

  • online rate quotes and application

See full profile

The Best Personal Loans for Home Improvement

  • Discover: Best Lender for Zero Cash Due At Closing

  • LightStream: Best Home Improvement Lender With a Co-Signer Option

  • Marcus by Goldman Sachs: Best Lender with No Loan Fees

  • SoFi: Best Lender for Loans of up to $100,000

  • Upstart: Best Lender with a Low Minimum Loan Amount

Best Lender for Zero Cash Due At Closing

Discover offers personal loans for debt consolidation, home improvement and major purchases. Loan terms from three to seven years are available.

Highlights:

  • Minimum FICO credit score: 620
  • Maximum debt-to-income ratio: 43%
  • Maximum combined loan-to-value ratio: 70%-95% of the property value depending on credit, lien position, and loan amount; 70%-80% in Texas
  • J.D. Power satisfaction rating: Not rated

Best Home Improvement Lender With a Co-Signer Option

Launched as a division of SunTrust Bank in 2013, LightStream offers personal loans of up to $100,000. Co-signers are accepted.

  • Minimum FICO score: N/A
  • Maximum debt-to-income ratio: N/A
  • Co-signer option: N/A
  • Preapproval or rate quotes available: N/A
  • Loan amounts: $5,000 to $100,000
  • Loan terms: N/A
  • Loan use restrictions: Funds must be used for approved loan purpose
  • Discounts: None
  • Origination fee: N/A

Best Features

  • LightStream has few restrictions on what you can use personal loan funds for. Except for college, mortgage, commercial or refinancing of other LightStream loans, you can use the money for anything, including IVF, jewelry, adoption fees, medical bills or building a pool. However, you must use the funds for the specific purpose listed on the application.

  • Loans are offered as high as $100,000. Borrowers can take up to seven years to pay back the loan for most uses. If you’re borrowing $25,000 to $100,000 for home improvement, you can choose a loan term of up to 12 years.

  • LightStream doesn’t charge origination, prepayment or late fees. This can save borrowers a lot of money, especially if you’re taking out a $100,000 loan.

See full profile

Best Lender with No Loan Fees

Borrowers can apply for fixed-rate unsecured personal loans with Marcus by Goldman Sachs. Personal loans with this lender have no origination, prepayment or late fees.

  • Minimum FICO score: Not disclosed
  • Maximum debt-to-income ratio: Not disclosed
  • Co-signer option: No
  • Preapproval or rate quotes available: Not disclosed
  • Loan amounts: $3,500 to $40,000
  • Loan terms: 36 months to 72 months
  • Loan use restrictions: Only debt consolidation, home improvement, major purchases, special occasions, moving and relocation and vacations
  • Discounts: N/A
  • Origination fee: None

Best Lender for Loans of up to $100,000

SoFi has offered personal loans online since 2011. Borrowers can apply for fixed and variable-rate personal loans ranging from $5,000 to $100,000.

  • Minimum FICO score: 680
  • Max DTI: N/A
  • Co-signer option: Accepts co-borrowers
  • Preapproval or rate quotes available: Yes
  • Loan amounts: $5,000 to $100,000
  • Loan terms: 2 to 7 years
  • Loan use restrictions: Borrowers can only use SoFi Personal Loans for credit card debt consolidation, home improvements, relocation assistance, and medical expenses.
  • Discounts: 0.25% discount on your interest rate if you sign up for AutoPay
  • Origination fee: None

Best Features

  • SoFi has tough standards for borrowers, who must have a credit score of at least 680, stable employment and sufficient income to pay the loan. However, co-borrowers are accepted if you need help meeting SoFi’s approval standards.

  • Borrowers will pay no origination, prepayment or late fees.

  • SoFi offers both fixed- and variable-rate personal loans and is the only lender reviewed by U.S. News to offer variable rates. Consumers can borrow as much as $100,000 for up to seven years.

See full profile

Best Lender with a Low Minimum Loan Amount

Upstart uses automation to originate credit, funding more than $3.2 billion to 250,000 borrowers. Loans as small as $1,000 are available with this lender.

  • Minimum FICO score: 620
  • Maximum debt-to-income ratio: Not disclosed
  • Co-signer option: No
  • Preapproval or rate quotes available: Yes
  • Loan amounts: $1,000 to $50,000
  • Loan terms: 3 to 5 years
  • Loan use restrictions: Loan funds may not be used for any prohibited uses noted in Upstart’s Acceptable Use Policy.
  • Discounts: N/A
  • Origination fee: 0% to 8%

What Types of Home Improvement Loans Are Available?

The type of loan you choose will depend in large part on the scale of your project. For smaller projects, a short-term personal loan might be the best option. For major projects, you may need to tap into your home’s equity by securing a home equity loan.

A home equity loan is a second mortgage for a fixed amount of money that is secured by your home. You repay the loan with equal monthly payments over a fixed term, just like your original mortgage. If you don’t repay the loan as agreed, your lender can foreclose on your home.

How much equity can you borrow?

Lenders usually limit total loans to 85% of the value of your home. This is the total loan-to-value ratio. However, some offer home equity loans that bring your total mortgaged value up to 100%.

For example, if you originally bought your home for $250,000 and have since paid $60,000 on your mortgage, you now have $60,000 in equity and a loan balance of $190,000, assuming your home’s value has remained the same. Combined with your first mortgage, a lender typically would allow you to borrow up to 85% of the value of your home, or $212,500 total. After subtracting your mortgage balance, you have $22,500 in available equity left to borrow.

As with any loan, the actual amount offered depends on additional factors, including your income and credit history.

Typically, home equity loans have fixed interest rates. The rates stay the same over the life of the loan, so your monthly payments never change.

Home equity loan interest rates are typically slightly higher than mortgage rates. Most banks start with a benchmark rate, such as the prime rate, and adjust your rate based on factors including your home’s value, loan terms and amount, your credit history, income and existing mortgage balance.

The annual percentage rate determines how much interest and additional costs, such as fees, you’ll pay to the lender over the life of the loan. The lower the rate, the less the loan will cost you overall, so search for the most competitive rate you can qualify for.

Fees can include closing costs, late fees and processing fees. Lenders may roll closing costs into the loan balance rather than requiring payment at closing.

Typical closing costs include an origination fee, appraisal, title search and credit report fee.

Home Equity Loan Advantages

  • Lower interest rates. Home equity loans typically have much lower interest rates than unsecured products such as credit cards. There is less risk for the lender because your loan is secured by collateral, and lower risk translates to lower interest rates.

  • Potentially larger loan amount. Personal loans are often restricted to a maximum of $50,000. Home equity loans are generally limited to 85% of the value of your home minus what you still owe on your current mortgage. Lenders will want you to stay below the maximum loan-to-value and debt-to-income ratios.

  • Tax deduction. If you’re making capital improvements to your home, the interest you pay for your home equity loan may be tax deductible if your combined first and second mortgage debt does not exceed $750,000.

Home Equity Loan Disadvantages

  • Reduction of equity. When you draw on your home equity, it’s not equity anymore. It’s a second, smaller mortgage. Any amount that you borrow subtracts that same amount from the equity you’ve built.

  • Risk of foreclosure. The lender can foreclose on your home if you fail to repay the loan, as you’re using your home’s equity as collateral.

  • Long-term payments. If you use a long-term home equity loan for a short-term expense, even with a lower APR, you could pay more interest over time than if you had used a different form of financing. Home equity loans are commonly available for up to 30 years, while personal loans typically have a maximum repayment period of seven years.

  • Greater liability. If you sell your home, all mortgages, including a home equity loan, will need to be repaid immediately upon sale. If your loan was for a home improvement that increased your home’s value, the difference may cover the immediate loan payment. However, home renovations do not typically offer a 100% return on investment.

  • Equity qualification. Home equity lenders have strict loan-to-value qualifications, so you may not be approved if you don’t have enough equity in your property. Personal loan lenders don’t consider your home’s equity when making approvals.

A personal loan used for home improvement is like any unsecured personal loan. It’s not guaranteed by your home, and the interest rate you receive depends on your creditworthiness. Personal loans usually have a fixed interest rate, which means you can reliably schedule monthly payments into your budget.

The payback period on personal loans, typically two to five years, is shorter than on home equity loans, which can be up to 30 years.

Personal loans are available for amounts between $1,000 and $100,000.

Like home equity loans, personal loans have an APR that includes interest and additional fees. You should seek out the lowest APR you can qualify for.

Typically, personal loans are offered at a fixed interest rate, though some lenders offer variable-rate personal loans.

Interest rates offered for personal loans vary significantly, ranging from about 4% to 36%. You may qualify for a lower interest rate on a personal loan than a home equity loan in some circumstances, such as if you have excellent credit and income. However, as an unsecured loan, personal loans will typically have a higher interest rate than a home equity loan.

Application or origination fee. As with a home equity loan, the application or origination fee is what you pay the lender to process the loan. It’s common for lenders to roll the origination fee into the loan balance rather than as a closing cost. Personal loan origination fees are usually between 1% to 6%.

Prepayment fee. Some lenders charge a fee for making payments ahead of schedule to offset the interest you’ll save by paying early. This fee is not common among personal loan lenders.

Late fee. You’ll typically be charged a late fee if your payment is not on time. Lenders may offer a grace period of 10 to 15 days, after which a late fee applies. These fees typically range from $15 to 5% of the payment due.

Other fees. Some lenders charge additional fees, including returned payment or check processing. These fees can increase the total cost of your loan. It’s always smart to look for the lender with the least fees, but it’s also important to calculate those fees along with your total interest payments to see which loan is the cheapest over time.

A lender may have no closing costs and a higher APR that could cost you more in the long run than a lender with some closing costs and a lower rate.

  • You don’t need equity. Personal loans don’t draw on your home’s equity, so you can qualify even if you don’t have significant equity in your home. Mindy Jensen, BiggerPockets real estate investment community manager, recommends taking out a personal loan if you don’t have significant equity in your home.

  • You can borrow smaller amounts. Personal loans are available for as little as $1,000, but home equity loans often have a minimum of at least $10,000.

Personal Loan Disadvantages

  • Higher interest rates. Typically, personal loans have higher interest rates than home equity loans, so you’ll pay more to borrow with a personal loan.

  • Shorter repayment periods. Personal loans usually have a repayment period of two to five years, while most home equity loans have terms of up to 30 years. A shorter repayment period can be good for quickly paying off small amounts, but if you’re financing an expensive home improvement project on a short repayment period, the monthly payments may be too large for your budget.

How Can You Apply for a Home Improvement Loan?

Apply before you need to start improvements.

It’s a good idea to plan ahead and apply for a home improvement loan well before you plan to start improvements, advises Charlie Nilsen, executive vice president of Boston Private wealth management company. Timing and paperwork may take longer than you expect. He advises borrowers to start the process at least 30 days in advance.

Determine how much you need.

Consider your project amount and leave room for error. Keep in mind your budget, total loan-to-value ratio and how long you want to pay for the improvement.

Jensen cautions against taking out a home improvement loan that strains your finances to make cosmetic improvements. It isn’t worth going into foreclosure just to have a nicer kitchen, she says.

Determine your preferred loan term.

Consider your budget and how quickly you can pay off the loan. A long-term home equity loan makes sense for some long-term improvements, such as a room addition or new roof. But you shouldn’t get a 30-year home equity loan for minor renovations that will be replaced before you’re done paying for them, such as flooring.

Get prequalified with lenders to find out what interest rates you’ll qualify for. This will allow you to compare what different lenders have to offer. You can get prequalified with multiple lenders, but you should verify they are only performing a soft inquiry, as multiple hard inquiries can ding your credit rating.

Consider your eligibility.

Before you apply, consider how qualified you are for the loan. Your credit history and score, loan-to-value ratio and debt-to-income ratio are important factors in approval and qualifying for the best rates.

  • Credit history. As with all loans, home improvement lenders prefer borrowers with a history of paying their debts consistently and on time. A FICO credit score of 620 or higher may be needed to be approved for a home improvement loan. However, there are lenders that offer home equity and personal loans that will accept borrowers with lower credit scores, some as low as 580. Interest rates tend to be higher the lower your credit score is.

  • It’s a good idea to review your credit report and know your score before you apply for a home improvement loan. Work on paying down existing debt, especially on any delinquent accounts. Check for errors on your credit report and work with credit reporting agencies to correct and remove the errors if necessary.

  • Loan-to-value ratio. Although personal loan lenders don’t typically take loan-to-value into consideration, this ratio is important for home equity loans. In general, the lower your loan-to-value ratio, the better your terms.

  • Debt-to-income ratio. Both home equity and personal loan lenders consider your debt-to-income ratio when making lending decisions. Your debt-to-income ratio is all of your current monthly debts divided by your monthly gross income. For example, if you have a monthly before-tax income of $6,000, a $1,500 mortgage payment, $300 car payment and $100 in minimum credit card payments, your ratio would be $1,900 divided by $6,000, or 32%. Most home equity lenders stick to the Consumer Financial Protection Bureau’s recommendation to approve debt-to-income ratios no higher than 43%, but some personal loans are available to borrowers with up to 50% debt-to-income.

How Can You Choose the Best Home Improvement Lender?

It’s important to choose a home improvement lender that aligns with your needs. Nilsen advises homeowners to research local institutions and check with friends or neighbors who have recently done home improvements. Depending on the size of the improvements and options to borrow against existing equity, the best lenders may vary, he says.

There are four key areas you should focus on when choosing a home improvement lender: eligibility requirements, loan amounts, APR and customer satisfaction.

Some lenders charge application fees, so you don’t want to waste time and money applying for a loan you won’t be approved for. Research ahead of time to find a lender’s minimum qualifications and only apply with the lenders most likely to grant you the loan.

All home equity loans have maximum loan-to-value amounts. Some have minimum and maximum dollar amounts as well, regardless of your needs or your home’s equity. You don’t want to choose a lender that requires you to take out a loan larger than you need, and you also don’t want to pick one that won’t loan you enough for your purposes.

Consider the interest rates offered by each lender, but keep in mind that not all borrowers will qualify for the lowest published rates. It’s best to get prequalified so you can get a good idea of what your interest rate will be.

When comparing rates, make sure you’re looking at the APR, not just the interest rate. The APR represents the total annual cost of the loan, not just interest, so it’s a better tool to compare lenders.

A variable APR can offer lower interest in the short term but may be more expensive once rates go up. This type of loan could be a good idea if you’re selling before the interest rate will change, which will allow you to take advantage of the lower rate without paying higher interest after it increases.

Generally, you can expect the best service from companies with good customer satisfaction ratings. You can research customer experiences with independent ratings resources such as J.D. Power.

J.D. Power offers the 2018 U.S. Primary Mortgage Origination Satisfaction Study and the 2019 U.S. Personal Loan Satisfaction Study. The studies don’t specifically address home improvement loans, but both rate the customer service of lenders that typically offer improvement loans.

Not every lender will be included in the J.D. Power studies, particularly alternative lenders offering personal loans. For companies that aren’t rated by J.D. Power, read reviews in similar categories from the Better Business Bureau and Trustpilot.

What Are Some Alternatives to Home Equity and Personal Loans?

Home Equity Line of Credit

A type of home equity loan, home equity lines of credit allow you to use the equity in your home as collateral. Unlike a home equity loan, home equity lines of credit are revolving, allowing you to borrow and pay back a certain percentage of your home equity during the draw period.

Also similar to a home equity loan, a cash-out refinance is a new mortgage. However, instead of taking out a second mortgage, a cash-out refinance replaces your original mortgage. You’ll access your equity to get cash at closing, which you can use for home improvements. Your refinanced home loan will have a new balance, payment, interest rate and terms.

Government Programs for Home Improvement

Some government programs can help pay for a home remodel. These programs are federally insured, which reduces the lender’s risk, so it may be easier for borrowers to qualify for the loan. The Federal Housing Administration has two programs:

  • Title I loans
  • Energy Efficient Mortgages

Under Title I, the U.S. Department of Housing and Urban Development authorizes lenders to make home improvement loans, with HUD backing in case of default. The interest rate is fixed and generally based on the most common market rate in the area. The rate is determined by the lender and may vary depending on the lender, your credit and market rates. You can search for a Title I home improvement lender on HUD’s website.

Energy Efficient Mortgages

With the Energy Efficient Mortgage program, homeowners can finance cost-effective energy-efficiency improvements. Qualifying energy-efficient improvements may include solar panels, wall insulation and furnace duct repairs. Like Title I loans, EEM loans are made by lenders but are federally insured and may be easier to qualify for with government backing. Applying for an EEM loan requires a home energy assessment performed by a qualified home energy assessor. Borrowers can choose to make improvements based on the recommendations from the assessor.

Other Home Improvement Assistance Programs

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