How to get a home improvement loan 

Steps to getting a home improvement loan

Here's an overview of the steps you should take when getting a home improvement loan:

Step 1: Determine your budget for the home improvement project

Before looking at loan options or shopping around for rates, you should work out your budget. This means figuring out how much money you need and what monthly payments you can afford. Factor in any costs for labor and materials, as well as any additional fees for securing a loan.

Taking the time to determine your budget makes applying for a home improvement loan easier and less stressful.

Step 2: Compare loan options and rates

Once you know what kind of budget you're working with, it's time to compare loan products and shop around for rates. Lenders may offer different rates and terms depending on your financial situation, so research which options are best for you.  

Some online calculators can help you estimate monthly payments based on the amount of money you’d like to borrow, interest rates, and the length of the repayment period.

Step 3: Choose a home improvement loan

After researching different types of loans, decide which option is best for your situation. There are three main types of home improvement loans available — home equity loans, HELOCs, and cash out refinances — and each one has advantages and disadvantages.

Depending on the size of your project and how quickly you want the money, one option might be better for your needs than another.

Step 4: Apply for the home improvement loan

Now you have chosen a type of home improvement loan, it's time to apply. Most lenders require basic information from applicants, including:

• Income verification documents
• Proof of homeownership
• Estimated renovation costs (particularly for larger projects)

The specific requirements can vary depending on the lender or type of loan you're requesting.

Fill out all necessary paperwork properly before submitting it for approval — this may speed up your application!

Types of home improvement loans

Whether upgrading your kitchen, replacing old flooring, or adding a fresh coat of paint, knowing about the different types of home improvement loans is important.

While there is no one specific home improvement loan, there are a few different loans that you can use to finance home improvements.

Let's look at the different kinds of loans that can help bring your home remodeling dreams to fruition.

HELOC

HELOCs are similar to home equity loans in some ways. However, instead of borrowing a lump sum upfront, you can access a line of credit to draw from as needed up to an approved limit.

A HELOC may offer more flexibility than other types of finance since you can borrow exactly what you need when you need it. The downside is that HELOCs usually come with variable interest rates. If interest rates rise over time, so will your monthly payments.

Cash out refinance

A cash out refinance lets you tap into your home equity and take out a new home loan that's larger than your current home loan. You receive the difference between these two amounts in cash.

This option may benefit homeowners who need extra money for home improvements. However, cash out refinances typically have higher interest rates than other refinance types, so consider the pros and cons of this option before deciding if its right for you. 

Try using a cash out refinance calculator to figure out how much money you may be eligible to receive.

Credit card

A credit card may be one of the fastest ways to fund your project since you may get approval in minutes, allowing you to start making purchases immediately. However, credit card interest rate tend to be higher than other financing options, so you may only want to use this option if you plan to pay off your balance quickly. 

Many lenders offer promotional financing plans with no interest if you pay off a credit card within a certain time frame. This option can be helpful if you use a card responsibly but any missed payments may result in high late fees and interest charges.