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The Best Home Improvement Loans of 2020


Home Improvement is a common practice, adopted by millions of Americans. Some do it because they would like to change certain aspects of their houses to make it more homely while others do it to simply increase the value of their property.

As evidenced by these statistics, home improvements and repair expenditures amount to hundreds of billions of dollars. While most of them choose to use their savings for these improvements, some also opt for home improvement loans.

Home improvement loans have increasingly become more and more popular over the years and if you are considering going down this route for your own home improvement plans, you have come to the right place.

We will be dissecting and discussing the many important aspects of home improvement loans and comparing the many options available in the market, to give you a better understanding of what you are getting into.

Check it out below.

What is a home improvement loan?

Homeownership is clearly an important factor in future planning for many Americans. This can further be backed up by these statistics which puts the homeownership rate in the United States at 65.1% in 2019.

Homeownership is hard-earned but well worth it. Whether it is stability, security, or improved quality of life—a home can be a source of many of these things for you. Moreover, it also can give you a great return on your investment.

What better way to increase your return on investment making some much-needed home improvements?

Not many people can afford to dip into their savings to do these repairs, though. Nor do they have their insurance covering these endeavors. Therefore, a suitable option for covering these expenses is through a home improvement loan.

A home improvement loan is not much different than any other loans. A lender sets the terms for the amount to be borrowed and you make payments over a set time for both, the principal and interest.

Types of home improvement loans

There are multiple types of home improvement loans that you can choose from. Some are specialized, and some are general. The type of loan that you choose is dependent upon your requirements and your situation.

Cash-Out Refinance

Through cash-out refinancing, you can get a new home loan by replacing your existing mortgage. You can get this option for more than what you owe on the house. By doing so, you can use the difference to finance your home improvement plans. However, to be eligible for this option, you need to have equity built up in your house.


  • Reduced interest rates – compared to a home equity line of credit (HELOC), you can get lower interest rates if you bought your house at higher mortgage rates initially.
  • Debt consolidation – you could also use the money that you got from a cash-out refinance to pay off your other expenses. For example: your high-interest credit card charges. Doing so will allow you to save thousands of dollars that you would have otherwise had to pay in interest.


  • Risk of Foreclosure – when you get a cash-out refinance, you put your home as collateral. Failure in making payments might cost you your house.
  • Different Terms – since this is a new mortgage, you might find terms that are different from the ones that you had initially. Your interest rate and fees might be vastly different than what you were used to. Therefore, double-check everything.

Home Equity Loan

A home equity loan can be had after using your home as security. These are usually popular for projects that are related to home improvements and repairs. A lump sum amount is given once you are cleared.

The interest rates are lower than they would be if you would have gone for a personal loan but the catch here is that you risk foreclosure if you miss your payments.


  • Easy to get – as mentioned, these loans are easy to get. You can easily get them if you have a steady source of income, the ability to repay the loan, and a solid credit history.
  • Lower interest rates – the interest rates are very low. Even lower than credit cards and other consumer loans.


  • Possible spiraling debt– a problem with this loan being so easy to get is that people who are in the habit of spending, borrowing, and spending again can fall into a cycle of debt-ridden misery that can be hard to get out of. This option can harm such people as taking more loans to pay off existing debt can cripple your financial prospects.
  • Potential home foreclosure – as mentioned, if you miss out on consistent payments and showcase an inability to pay your remaining installments, you can risk foreclosure.

Home Equity Line of Credit (HELOC)

Home equity line of credit or HELOC provides you with a revolving line of credit that is secured by your home. It is sought to cover large expenses and can be used to pay off the debt on other loans, such as credit cards, etc. It is also a lower interest option, compared to other types of personal loans.


  • No closing costs – if you have a good credit history, you will not have to pay any application fee, closing or appraisal costs, if you decide to get a HELOC. These can be paid with the help of standard home equity.
  • Low interest rates – since a HELOC is secured by your home equity, you will be in a position to enjoy extremely low interest rates, compared to personal loans or credit cards as they are unsecured.


  • Low-payment trap – one of the best features of a HELOC is that you can pay your minimum monthly payment, during the draw, which would cover your interest charges only. But if you keep paying only the minimum amount, you will be unable to ever pay off your principal.
  • Rising interest rates – fixed-rate loans are usually higher priced than HELOCs, to account for potential interest rate rises. If interest rates rise later on, however, it will be followed by adjustable-rates, which would make you pay a higher rate than what you signed up for initially.

How to apply for a home renovation loan?

Once you have wrapped your head around the scope of your project, the requirements, and the timeline, you are ready to apply for a loan.

Any home improvement loan will require you to submit the following:

  1. Your personal information – this includes your social security number, proof of income, employer information, employment history, and monthly debts, etc.
  2. Your debt-to-income ratio – you can get your debt-to-income ratio by dividing your monthly debt payments by your monthly income. A preferable ratio is that of 36% or less. Anything close to 50%, however, would be detrimental for your chances of securing a loan.
  3. Your credit score – you can get your credit report from any of the major credit-reporting bureaus for free.
  4. The cost of your project – it would be wise to know what materials you need, how much of it you need, and the time it is going to take to finish things up. Only borrow the amount that you need.

Summary: how to pick the best home improvement lender?

To pick the best home improvement lender, you need to look at the following factors:

  • Low interest rates
  • The largest loan amount option
  • Least fees
  • Easy repayment terms

All of the aforementioned factors are going to help you narrow down a lender that is perfect for you.