What Is A Home Improvement Loan And How To Get One

Aug 14, 2022 | Homebuyers

​Home improvement loans are typically used to finance major home renovations, repairs, or upgrades. These loans can be used for a wide range of projects, including but not limited to:


  • Kitchen or bathroom remodels
  • Building an addition
  • Replacing windows or doors
  • Installing new flooring
  • Finishing a basement
  • Landscaping


There are many different types of home improvement loans available, each with its own set of terms, conditions, and repayment options. The best loan for you will depend on the scope and cost of your project, as well as your financial situation.


What Are The Different Types Of Home Improvement Loans?


Several different home improvement loans are available, each with its own set of pros and cons. The most common types of loans are:


Home equity loans: Home equity loans are typically the best option for homeowners who have built up substantial equity in their homes. These loans allow you to borrow against the value of your home, using your home as collateral. Home equity loans typically have lower interest rates than other types of loans, and they can be used for many projects.


Personal loans: Personal loans are another option for funding home improvements. These loans are not backed by collateral, so they tend to have higher interest rates than home equity loans. However, personal loans can be a good option for borrowers with good credit who don’t have a lot of equity in their homes.


Credit cards: Credit cards can be used to finance small home improvement projects. However, credit cards typically have high-interest rates, so they should only be used for projects that can be paid off relatively quickly.


By the end of this article, you will have figured out why home improvement loans with Thrive Lending Group are your best option to renovate your house. Renovating your home should not be a stressful process, and Thrive Lending Group is here to help you renovate your home from start to finish!


But What Exactly Is A Home Renovation Loan?


A home renovation loan is the amount of money you can borrow to renovate your house. This type of loan is calculated based on the value your home will have AFTER you renovate it; in other words, you do not borrow money based on the current value of your home, but rather on the value of your home after you have completed your renovations.


Do not get confused with loan products such as loans for home improvements or any similar product- essentially these are personal loans or credit cards that are simply rebranded. You do not need those; they have high-interest rates and the amount you can borrow is relatively limited compared to the actual amount.


What you need is a home renovation loan, which is the only loan that will credit you money based on your home’s after-renovation value. But why is that important? By calculating the credit you based on the value of your home after you renovate it, this type of loan allows you to potentially borrow a larger amount than other types of loans based on the future value of your home.


How Do Renovation Loans Work?


If you are considering a home renovation loan, some popular options are the following:

  • FannieMae Homestyle: This type of loan is insured by Fannie Mae, an agency sponsored by the government. It is a single close loan that can approve up to 95% of your home’s future value (lenders in other types of loans usually go up tp 80%).


You only have to deal with one loan, sign it once, and spread payment for 30 years. Getting it is easier than other types; you don’t need a top-notch credit score to qualify for it, but it helps if you do.

  • FHA 203K: Similar to Fannie May Homestyle loans, FHA 203K loans are insured by another government-sponsored agency, the FHA. They can go up to 96,5% in credit, and you can spread the payback over 30 years. Though it seems quite the same as Fannie May (and it essentially is), you might need to consider it if your credit score is not looking too hot.
  • EZ ‘C’onventional: this one is quite different from the previous two and allows you to do small redos on your house -if you have bought it recently. It’s not a big loan; it can go up to $35K and your redos must be finished within two months.
  • Jumbo Renovation: Jumbo renovation loans are probably the only ones that cover the entire cost of your remodeling plan. they are called Jumbo because they can go over the conforming loan limit (which changes annually). It’s a solid option if other types of loans do not cover your home improvement plans. Your repairs need to be non-structural and increase the overall value of your home.
  • USDA Rural Development Home Repair Loans: These are loans granted by the USDA Rural Development program. They can help you make the necessary changes to your house to make it healthier and safer or accessible to everyone. The USDA loans can go up to $20K and have a fixed interest rate of 1%. Payment can be spread over 20 years. These loans can cover any structural repair such as heating, electrical systems, foundations, roofs, septic systems, and any other system that will help remove health and safety risks.


Paying for home improvements, repairs, or renovations with our own money would seem ideal, but firstly, it will make your pocket lighter by quite a substantial amount. However, if you want to increase your home value by renovating, a home renovation loan is probably the best way.


Home Renovation Loan vs. Traditional Home Equity Loan & HELOC


Traditional home equity loans or home equity lines of credit (HELOC) work depending on the equity you have built up in your home. By home equity, we refer to the financial difference between the money you owe and the value of your home; for example, if you owe $400K and your home value is $700K, then you have a $300K in home equity.


However, if your equity is not sufficient to credit you the money you need for your home renovation, practically you will either need to cut down on the repairs you wanted to do or find some other financing option.


A home renovation loan is calculated based on your home’s future market value. In the example above, if you owe $400K and the future home value is estimated to be $850K, then you have a $450K in equity which can credit you a more significant amount of money.


Home Renovation Loan vs. Personal Loans or Credit Cards


Thinking of taking up a personal loan or a credit card to redo your home? This is a big NO NO! Personal loans and credit cards are loans with high-interest rates and shorter terms. They probably cannot finance your renovation because the amount is usually insufficient, so if you use them, you will pay more and do less remodeling work.


Your best option is a home renovation loan secured against your house. This means you get lower interest rates and can borrow more money.


Contact Us and Start Renovating Your House Today!


At Thrive Lending Group, we take great pride in keeping up-to-date with the latest news in the home renovation loan world. Taking on a home renovation loan needs to be done at the best possible time and date; your finances must be at a point so that you can handle an extra loan, home buying rates in your area may be expected to rise, or your renovation ideas may exceed what buyers can afford. We are eager to work with you by putting all our cards on the table and making the best possible decision for your home renovation loan.