Best Loans for Home Improvement in 2024

a couple doing some renovations funded by the best loans for home improvement

If you need financing to repair, renovate, or remodel your home, then a mortgage broker in the US can help you find a loan that is specifically designed to fund such a project. 

Home improvement loans come in various forms, each tailored to different needs, and securing the right one can make all the difference in bringing your vision to life.

These loans can be used for a wide range of purposes, from kitchen and bathroom remodels to adding an extension or upgrading your home’s energy efficiency. 

Some of them are backed by the government, while others are available through private lenders.

The Mortgage Shop knows the importance of understanding your options and their specific benefits to make an informed decision when taking out these loans. 

For that reason, we bring the best loans for home improvement to take out this year!     

Best Home Improvement Loans 2024  

The best loans for home improvement come with unique features that appeal to different borrowers. Here are our top recommendations.

FHA 203(k) Rehab Loan

An FHA 203(k) rehab loan is a dual-purpose financing option—you can use it to purchase or renovate a home. 

Supported by the Federal Housing Administration, this loan combines the costs of buying a home and remodeling or repairing it into a single mortgage. 

This simplifies your loan application process by eliminating the need for separate loans. And, the best thing? It’s offered to those with less-than-perfect credit!

When taking out this loan, lenders will check your creditworthiness and income, with options for a 15- or 30-year fixed-rate mortgage or an adjustable-rate mortgage (ARM). FHA credit score standards are more lenient than other home equity options, so it will be easier for you to qualify.

There are two types of FHA 203(k) rehab loans:

  • Limited 203(k) loan – For projects up to $35,000. This type of loan has a streamlined application process.
  • Standard 203(k) loan – For larger projects exceeding $35,000. This loan involves a more detailed application.

Both options provide flexible financing to help you achieve your home improvement goals.

Conventional Mortgage Renovation Loan

If you need a larger loan amount than FHA loan limits or are planning to carry out luxury upgrades, then a conventional mortgage renovation loan is a great option. 

Funded by Fannie Mae and Freddie Mac, these loans follow guidelines similar to the FHA 203(k) loan, with the HomeStyle Renovation program being a popular choice offered by Fannie Mae lenders.

A conventional mortgage renovation loan allows you to combine the cost of your home improvements with your mortgage into a single loan. 

And, the amount is based on the estimated value of your home after renovations, rather than its current value.

This feature will provide you with access to higher loan amounts and fewer restrictions on the types of renovations compared to the FHA 203(k) program, which makes it an attractive option for substantial or high-end home improvements.

Home Equity Loan

If you have built equity in your home, this is an ideal financing option for your home improvement projects.

As the name suggests, a home equity loan is funded by the equity you have accumulated and is disbursed to you in a lump sum. 

Typically, this loan comes with a fixed interest rate and repayment terms ranging from five to 30 years. And, most lenders allow you to borrow 80% to 85% of your home’s equity.

When applying for a home equity loan, the interest rates and terms you receive will depend on your creditworthiness. Generally, the interest rates on these loans are lower compared to other types of financing.

Why? The loan is secured by your home!

Additionally, you may be able to deduct the interest on your taxes if the loan is used for home improvements.

However, you need to be aware of one major risk that comes with these types of loans. Remember—defaulting on a home equity loan could lead to serious consequences, including foreclosure.

Home Equity Line of Credit (HELOC)

A HELOC is another way to finance renovations using your home’s equity. But unlike a home equity loan, it works more like a credit card that allows you to withdraw funds as needed over a set period, typically with fixed or variable interest rates. 

This flexibility makes HELOCs ideal for ongoing projects because you can draw from the line of credit whenever necessary until the draw period (typically five to 10 years) ends.

According to a report by MarketWatch, HELOCs often come with lower interest rates than other unsecured loans and credit cards. 

This keeps your monthly payments low throughout your renovation project. However, it is important to be aware of pre-payment penalties for closing the credit line early.

Also, like home equity loans, HELOCs use your home as collateral, which means your home is at risk if you cannot repay the loan.

On the upside, you can potentially deduct the interest on your taxes if the funds are used solely for home improvement expenses.

Cash-Out Refinancing

This type of mortgage option allows you to convert your home’s equity into cash, making it a suitable choice for major upgrades. 

With cash-out refinancing, you apply for a new mortgage larger than your current one, and you receive the difference in cash. 

This approach lets you spread the payment over as long as 30 years, keeping your monthly payments lower than many other financing options.

To qualify, you need to have sufficient equity in your home. However, you can’t borrow more than 80% of your home’s value. 

But like home equity loans, you get all the funds upfront and usually opt for a fixed interest rate with a long repayment term.

However, cash-out refinancing may not be the best choice if your current mortgage rate is lower than the prevailing rates as you could end up paying more in interest.

Additionally, closing costs can be higher compared to home equity loans or personal loans, given the larger loan amount.

Unsecured Personal Loan

For a small or midsize home improvement project, you can finance it with an unsecured personal loan. This type of loan is ideal for emergency home repairs because it offers quick funding, sometimes as soon as the day after you apply.

A personal loan is similar to a home equity loan in that you receive all the funds at once and make payments at a fixed rate. 

However, because personal loans are typically unsecured, you do not risk losing your home if you default. This makes them an attractive alternative if you lack sufficient equity to cover your renovation costs.

If you have excellent credit, then you may secure rates comparable to home equity loans. On the other hand, you may face higher rates if you have poor credit.

3 Tips to Get the Best Rates on a Home Improvement Loan

borrower checking his credit report to apply for a home improvement loan

Home improvement loan interest rates can vary widely. And, your credit score plays a significant role in determining your rate. The better your score, the more favorable your rate will be. Here are some tips to increase your chances of getting the best rates.

1. Review Your Credit Score

Before applying for a home improvement loan, you should review your credit score. Lenders typically prefer borrowers with good credit, as it increases the likelihood of approval for the best loan options with lower interest rates. 

You can obtain a free copy of your credit report from AnnualCreditReport.com to thoroughly review it for any inaccuracies or errors.

Errors in your credit report can negatively impact your credit score and potentially hinder your ability to qualify for favorable loan terms. As such, you should rectify them before the loan application process.

Taking proactive steps to improve your creditworthiness can ultimately result in significant savings over the life of your loan.

2. Add a Co-Signer

Co-signing a loan involves having someone else, typically with a strong credit history, guarantee your loan alongside you. This arrangement reduces the lender’s risk, as they have assurance that the loan will be repaid even if you encounter financial difficulties.

Also, having a co-signer increases your chances of loan approval if you do not meet the lender’s requirements on your own. You may also qualify for a lower annual percentage rate (APR) and/or a higher loan amount.

However, it is important to understand that both you and your co-signer are equally responsible for repaying the loan. Therefore, you should choose someone who trusts you and understands the potential implications of co-signing a loan.

3. Take Advantage of Pre-Qualifications Offered by Lenders

Getting pre-qualified for your home improvement loan can provide valuable insights into your borrowing potential and help you navigate the application process more effectively. The best way to do this is by working with a mortgage broker with connections to the best lenders.

With your broker, you can arrange pre-qualification from multiple lenders to compare offers and find the most favorable terms. Since this step only involves soft credit inquiries, it does not negatively impact your credit score.

Lenders will then send you pre-qualification letters that outline the amount they are willing to lend based on certain assumptions. While it is not a guarantee of loan approval, it offers a useful estimate of your borrowing capacity.

Get the Best Loans for Home Improvement with the Mortgage Shop!

By using the best loans for home improvement, you will be taking a significant step toward realizing your visions for your property. 

At the Mortgage Shop, we understand that finding the right financing option can be daunting, but we’re here to help simplify the process and offer the most suitable solutions for your needs. Schedule a call with a mortgage consultant today and let us help you turn your renovation dreams into reality!

Brenna Carles

Brenna Carles

I help people who want a place to call their home, where memories can be made, and stories to be shared. Where i can help clients build generational wealth for years to come. I provide the perfect combination of southern hospitality and relentless knowledge and passion for mortgage lending as if you were family.