The loan option you choose for your home remodel will significantly impact the project. Whether you want to borrow money for just one feature, like that rainforest shower or a room, your lender and rates will vary. If you plan to finance the project, you should rate shop and prequalify before starting.
Home Equity Loans
Home remodel financing for contractors can be valuable in attracting more clients and closing bigger deals. A home equity loan uses the difference between your property’s current market value and what you owe on your mortgage as collateral. Your home’s equity grows over time as you make mortgage payments and your home appreciates. If you have a good credit score and a low debt-to-income ratio, home equity loans can be an excellent source of financing for your remodel.
Home equity loans often have a lump sum disbursement and come with a fixed interest rate and monthly payment, which can be helpful if you’re looking to finance a one-time expense or debt consolidation. However, it’s important to note that refinancing a mortgage with cash can offer similar benefits at a lower cost than a home equity loan.
Home Equity Line of Credit
Homeowners can leverage the value of their homes with either a home equity loan or a revolving home equity line of credit (HELOC). Both offer low-cost financing.
Both loans require borrowers to put up their homes as collateral and come with risks. Using your home as collateral for financing can lead to serious financial trouble, including foreclosure if you cannot repay what you owe.
HELOCs function more like credit cards than home equity loans, with homeowners able to borrow against their homes’ equity on an ongoing basis during a set timeframe known as the draw period, which typically lasts for a fixed term of years before moving into a repayment period. Borrowers must make interest-only payments during repayment, which can rise significantly when rates spike.
Home Improvement Loans
Home improvement loans are a popular choice for financing many upgrades. It’s important to note that the term “home improvement loan” can describe both a home equity loan and an unsecured personal loan for a home project. As a result, it’s essential to carefully research your options before applying for anything that may not be suitable for your situation.
Whether you need funds to fix a leaky roof or complete a full kitchen renovation, it’s important to consider all the options before you start shopping around. It’s also smart to have a firm budget and estimate for the project before seeking financing. To help you do that, we’ve rounded up our favorite personal loans for home improvement projects that offer a combination of low fees, large loan amounts, and competitive minimum rates. You can apply for most of these from the comfort of your home, and you’ll typically receive funding within a day or two after acceptance.
Personal loans can be a good choice if you don’t have enough home equity or prefer a no-collateral financing option. Many direct-to-consumer lenders offer pre-qualification online so you can know how much you may be approved for before deciding to move forward with a loan. Like other loans, personal loans have credit requirements and fees, and the interest rates and monthly payments can vary widely based on your creditworthiness, income, and debt-to-income ratio. To maximize your chances of getting the best personal loan terms, improve your credit score and pay down existing debt before applying.