Are you looking to upgrade your kitchen, add a new bathroom, or create a cozy outdoor space? Home renovation projects can be exciting and rewarding, but they can also be expensive and stressful.
How can you pay for your dream home makeover without breaking the bank or compromising on quality?
One option is to use a home renovation loan, a type of personal loan that lets you borrow money for both the purchase or refinance of a home and the cost of improvements.
In this blog post, we will explain what home renovation loans are, how they work, and what benefits they offer. We will also share some of the best home renovation loan providers of February 2024 and how to compare them.
A home renovation loan is a loan that combines the amount you need to buy or refinance a home with the amount you need to make renovations or repairs.
You can use this loan to finance any type of home improvement project, from cosmetic changes like painting and flooring to structural changes like adding rooms or installing a new roof.
Unlike a home equity loan or a home equity line of credit (HELOC), which requires you to use your home as collateral, a home renovation loan is an unsecured loan that does not put your home at risk.
This means you don’t have to worry about losing your home if you default on the loan. However, this also means that the interest rates and fees may be higher than secured loans.
There are different types of home renovation loans, depending on the size and scope of your project and your eligibility criteria. Some of the most common ones are:
This is a government-backed loan that is insured by the Federal Housing Administration (FHA). It allows you to borrow up to $35,000 for minor to moderate renovations, or up to the FHA loan limit for major renovations.
You need a minimum credit score of 500 and a down payment of 3.5% to qualify for this loan. You also need to hire an FHA-approved contractor and follow the FHA guidelines for the renovation work.
This is a conventional loan that is backed by Fannie Mae, a government-sponsored enterprise that buys and sells mortgages. It allows you to borrow up to 75% of the after-renovation value of the home for any type of renovation project, including luxury items like pools and spas.
You need a minimum credit score of 620 and a down payment of 5% to qualify for this loan. You also need to hire a licensed contractor and follow the Fannie Mae guidelines for the renovation work.
This is a loan that is guaranteed by the Department of Veterans Affairs (VA). It allows you to borrow up to 100% of the after-renovation value of the home for any type of renovation project, as long as it meets the VA standards for safety and livability.
You need to be an eligible veteran, service member, or surviving spouse to qualify for this loan. You also need to hire a VA-approved contractor and follow the VA guidelines for the renovation work.
This is a loan that is offered by banks, credit unions, online lenders, or other financial institutions. It allows you to borrow a fixed amount of money for any purpose, including home renovation projects.
You can choose from various loan amounts, repayment terms, and interest rates, depending on your creditworthiness and needs. You don’t need to have any collateral or follow any specific guidelines for the renovation work.
To find the best home renovation loan for your project, you need to consider several factors, such as:
How much money do you need to complete your project? How long will it take? What kind of renovations do you want to do? These questions will help you determine which type of loan is most suitable for your project.
For example, if you need a large amount of money for a major renovation that will take several months, you may want to opt for an FHA 203(k) loan or a Fannie Mae HomeStyle loan.
If you need a smaller amount of money for a minor renovation that will take a few weeks, you may want to opt for a personal loan.
How good is your credit history? How much money do you earn? These factors will affect your eligibility and interest rate for different loans.
For example, if you have a low credit score or a low income, you may have a hard time qualifying for a conventional loan or a personal loan. You may have a better chance of getting approved for a government-backed loan, such as an FHA 203(k) loan or a VA renovation loan.
However, these loans may also have higher fees and stricter requirements than other loans.
How much equity do you have in your home? How much is your home worth? These factors will affect the amount you can borrow and the loan-to-value ratio for different loans.
For example, if you have a lot of equity in your home or your home has a high value, you may be able to borrow more money and pay a lower interest rate for a secured loan, such as a home equity loan or a HELOC.
However, these loans may also put your home at risk and have longer repayment terms than other loans.
To compare different home renovation loan options, you can use online tools like NerdWallet’s personal loan calculator to estimate your monthly payments and total interest costs. You can also read online reviews and ratings of different lenders to find out about their customer service, fees, and features.
According to our research, some of the best home renovation loan providers of February 2024 are:
SoFi is an online lender that offers personal loans for home improvement projects. You can borrow from $5,000 to $100,000 with no fees, no prepayment penalties, and fixed interest rates ranging from 5.99% to 18.85% APR.
You need a minimum credit score of 680 and a minimum income of $45,000 to qualify for this loan. You can also enjoy perks like unemployment protection, career coaching, and financial planning.
LightStream is an online lending division of SunTrust Bank that offers personal loans for home improvement projects. You can borrow from $5,000 to $100,000 with no fees, no prepayment penalties, and fixed interest rates ranging from 3.99% to 19.99% APR.
You need a minimum credit score of 660 and a strong credit history to qualify for this loan. You can also benefit from their rate beat program, which promises to beat any competitor’s rate by 0.1%.
Upgrade is an online lender that offers personal loans for home improvement projects. You can borrow from $1,000 to $50,000 with an origination fee of 2.9% to 8%, no prepayment penalties, and fixed interest rates ranging from 7.99% to 35.97% APR.
You need a minimum credit score of 580 and a minimum income of $35,000 to qualify for this loan. You can also access free credit monitoring and financial education tools.
Best Egg is an online lender that offers personal loans for home improvement projects. You can borrow from $2,000 to $35,000 with an origination fee of 0.99% to 5.99%, no prepayment penalties, and fixed interest rates ranging from 5.99% to 29.99% APR.
You need a minimum credit score of 640 and a minimum income of $40,000 to qualify for this loan. You can also get your funds as soon as the next business day.
Discover is a bank that offers personal loans for home improvement projects. You can borrow from $2,500 to $35,000 with no fees, no prepayment penalties, and fixed interest rates ranging from 6.99% to 24.99% APR.
You need a minimum credit score of 660 and a good credit history to qualify for this loan. You can also enjoy flexible repayment options and free access to your FICO score.
Wells Fargo is a bank that offers personal loans for home improvement projects. You can borrow from $3,000 to $100,000 with no fees, no prepayment penalties, and fixed interest rates ranging from 5.74% to 24.49% APR.
You need a minimum credit score of 600 and a steady income to qualify for this loan. You can also get discounts on your interest rate if you have a Wells Fargo checking account or set up automatic payments.
Rocket Loans is an online lender that offers personal loans for home improvement projects. You can borrow from $2,000 to $45,000 with an origination fee of 1% to 6%, no prepayment penalties, and fixed interest rates ranging from 7.16% to 29.99% APR.
You need a minimum credit score of 640 and a minimum income of $24,000 to qualify for this loan. You can also get your funds as soon as the same day.
Navy Federal is a credit union that offers personal loans for home improvement projects. You can borrow from $250 to $50,000 with no fees, no prepayment penalties, and fixed interest rates ranging from 7.49% to 18% APR.
You need to be a member of the Navy Federal and have a good credit history to qualify for this
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