Building a new deck, addition or planning on home improvements can increase the living area of a home and improve the property’s resale value. But it’s not cheap, which is why many homeowners turn to project financing to cover project costs. OnDeck works with Acorn Finance to provide our customers with the best financing options for their deck, addition or home improvements. Read our blog section on how to budget your project.
ALTERNATIVES TO HOME IMPROVEMENT FINANCING
There are many financing options available for homeowners looking to make some home repairs and improvements. The best financing option is the option that sets you up for success by funding your project without costing you a ton of extra money in the process.
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LEARN MORE ABOUT HOME IMPROVEMENT FINANCING ALTERNATIVES
Below we will discuss the many financing options that are available to most homeowners, and in doing so, hopefully, you can make a well-informed decision about what type of home improvement financing is best for you.
What is the best way to finance home improvements?
There are many financing options available for homeowners looking to make some home repairs and improvements. The best financing option is the option that sets you up for success by funding your project without costing you a ton of extra money in the process. Below we will discuss the many financing options that are available to most homeowners, and in doing so, hopefully, you can make a well-informed decision about what type of home improvement financing is best for you.
Financing options for home repairs:
If your home is in need of some repair, there are several financing options that you may want to consider. Depending on the size and scope of the repair project and its potential costs, some financing options may be better than others. Additionally, some of these financing options may be better suited for you based on your current financial situation. Do you already have a second mortgage? Then a home equity loan or home equity line of credit may not be possible. Are the repairs going to cost $50,000, $75,000, or even $100,000+? Then saving up and paying for the repairs with cash or using a credit card may not be an option. Let us go through some of the most common financing options for home repairs to help you determine which option may be the best for your financial situation and current circumstances.
Cash: If you are aware of what kind of repairs your home will need in the near future, you could start saving as much as you can each month and putting the money into a special savings account devoted to the home repair projects you are looking to complete. If you are patient enough, you could only complete certain projects or certain portions of the project over time and pay cash along the way. If you already have savings, you can put some or all of that toward a down payment on a contractor and save the remaining funds during construction to be paid once the project is complete. Cash is the most financially intelligent way to pay for anything, whether it is a home repair project or a new vehicle. The reason is, when you pay cash for a home repair project, you are not required to pay interest. Depending on the amount needed to complete the repairs, you could end up saving thousands of dollars that would have been required to pay in interest over the life of a loan.
Credit cards: Credit cards are always an option for smaller home repair projects that do not cost more than a few thousand dollars. They can be a simple and quick way to pay a contractor, plumber, electrician, or pay for any materials that you may need. Ideally, if you use a credit card, you should be able to pay off the entire balance within a few short months to avoid paying an incredible amount of interest. If you know you may not be able to pay off the total amount in a few months, then you may want to consider a different form of financing with lower interest rates. If you only make the minimum payments on your credit card, you could be paying off your home repair project for years while accumulating a massive amount of interest in the meantime.
Personal line of credit: A personal line of credit acts similar to a credit card, however, the interest rates are often lower. Essentially, a lender will approve you for a certain amount, like $10,000, for example, you can borrow as much or as little of the 10k as you would like while making monthly payments as you go. The larger your monthly payments, the more your line of credit is replenished for future withdrawals. The funds from a personal line of credit often can be instantly transferred to your bank account from the lender. It is up to your bank how quickly they make the funds available. Otherwise, some lenders could even issue you a credit card that has direct access to your personal line of credit. Personal lines of credit can have interest rates between 10% and 20%, where some credit cards may charge an interest rate between 26% and 36%..
Cash-out refinance: If you do not think you can afford an additional monthly loan payment in addition to your current mortgage, student loans, car loan, credit cards, utilities, etc. then a cash-out refinance may be a great option to keep paying only one mortgage payment. A cash-out refinance may bring additional benefits like a lower interest rate and a lower monthly payment. With a cash-out refinance, essentially, you are replacing your current mortgage with a new mortgage that is for a larger amount. When the new mortgage pays off the original loan, there will be money left over that could be used to complete any home repairs that you need. One of the only downsides to refinancing your mortgage with a cash-out refinance is that you may have to pay for an appraisal, origination fees, taxes, and other closing costs. However, if it gets you the money you need to make some major home repairs and it lowers your monthly mortgage payments at the same time, then it may be worth it.
Government loan programs: There are several government loan programs that offer financing to make home repairs and renovations. There are home repair loans available through Fannie Mae, the FHA, HUD, the USDA, and the VA. Government loan programs are great options for individuals who may lack the credit to obtain more traditional and private methods of financing. Governmental agencies typically have a lower minimum credit score and down payment requirement for qualification. Lenders are also more willing to extend these types of loans to fair or bad credit borrowers because the US federal government insures these loans. Fannie Mae has the Fannie Mae HomeStyle Renovation loan program, the FHA has the FHA 203k rehabilitation loan program, HUD offers the HUD Title I Property Improvement loan, the USDA has the Section 504 Home Repair Program, and the VA offers the VA renovation loan which is a type of cash-out refinance. You may be eligible for one or more of these different types of loan programs to help with any home repairs that you may need to complete. These different programs will have different requirements and they may need to approve your plans before you get the funding. However, they are a good option for lower-income borrowers with fair to bad credit.
Home equity loan: A home equity loan, or second mortgage, is an upfront lump-sum payment from a mortgage lender that you pay back over time with monthly payments. You can use the upfront payment to complete any home repair projects that need to be done around your home and then pay back the loan plus interest over time. This is a fixed-rate loan that is valued based on the amount of equity you have built up into your home. Equity is essentially the difference between the value of your home and the balance of your mortgage. The more you have paid down your mortgage and the more the value of your home increases, the more equity you have to borrow against if need be. The two main drawbacks of using a home equity loan to complete a home repair project are that you will have a second monthly payment you will need to make on top of your current mortgage, and if you happen to fall behind on those payments, a lender may be able to sell your home to pay the loan balance in full.
Home equity line of credit: If you have at least 15% or 20% equity in your home, you may be able to qualify for a variable rate home equity line of credit. A HELOC is a revolving line of credit that you can borrow against up to the borrowing limit established by the lender. Essentially, when you apply for a HELOC, the bank or lender will approve you for a certain amount, let us say $60,000. As long as the HELOC is open, you can borrow as much or as little of that $60,000 and pay it back over a period of time with monthly payments. Again, a HELOC, like a home equity loan, is a secured line of credit that uses your home as collateral to secure the funds. Fall behind on your payments and you risk losing your home.
Personal home repair/improvement loan: If you already have a second mortgage or you do not like the idea of using your home as collateral to secure a loan, then a personal home repair loan is an unsecured personal loan that does not require any collateral. Depending on the lender, a personal home repair loan could be for any amount up to $100,000 with a potential loan repayment period of up to 12-years. To qualify for one of these loans, a lender most likely will review your credit history, verify your employment and income, take a look at what other existing debt payments you have, and they may even look at your personal banking information to see how you manage your money and if you are able to save. If you pass the test and qualify, you could be approved for a loan and receive the funds the same or the next day. Personal home improvement loans are perfect for good credit borrowers who can qualify for lower interest rates and who do not want any interference from the bank or the lender. Once the loan is approved, a lender is not concerned with how you use the money as long as you continue to make the loan payments on time and in full each month.
As you can see, there are plenty of finance options available to those who are looking to complete minor or major repairs on their home. Depending on your situation, some methods of financing may be better than others. You owe it to yourself to take the extra time to review all of your options before committing. The wrong decision may unnecessarily cost you much more money in the long run.
Best lenders for financing home improvements:
With so many lenders out there on the lending market these days, it may be a bit overwhelming for someone looking to navigate the market in search of the right lender for them. Some lenders may only cater to people with good or excellent credit. Some specialize in extending loans to bad credit borrowers. Some lenders may only offer short-term loans for smaller amounts while others specialize in large loans spread out over 10 or 12-years. Choosing the right lender for your financial situation and your circumstances is critical. That is why, for your convenience, we have compiled a list of the most popular and trusted lenders currently operating on the online lending marketplace.
Lightstream – 660 min score
Top pick for: Competitive rates and terms
Qualifications Needed: LightStream is an extremely popular lender amongst borrowers with good or exceptional credit. They offer competitive rates as well as many perks and incentives that LightStream customers enjoy. To qualify, you should have a credit score of at least 660 and make a minimum salary of $50,000 per year. Additionally, LightStream shows a strong preference for applicants who have a long credit history with a diverse array of account types. Often, LightStream would like to see an applicant who has some history of having previous loans and paying them off in full, with little or no late payments or delinquent accounts, and possibly a mortgage and a few credit card accounts.
Offers same or next-day funding
Lowers APRs that range from 4.99% to 17.49%
Offers a 0.5% rate discount when you enroll in autopay
Offers larger loans of up to $100,000 with repayment terms of up to 12-years
Minimum loan amount offered is $5,000
Requires a long credit history
Higher minimum credit score requirements
Why choose: LightStream is a good option for a homeowner with good credit who has a large or multiple home repair projects that they would like to complete quickly. LightStream offers up to $100,000 over a period of up to 12-years for homeowners who need to complete some major renovations on their homes. They offer zero fees and competitive interest rates. LightStream is a trusted lender that has been in business for many years.
SoFi – 680 min score
Top pick for: Large loan amounts with competitive rates
Qualifications Needed: SoFi requires from potential borrowers a minimum credit score of 680 and a minimum income of $50,000/yr. In exchange for having higher minimum requirements, SoFi offers competitive rates, larger loans of up to $100,000, and access to the SoFi community. SoFi is more than a simple lender. SoFi offers access to an online community that is full of financial educational resources, special networking events, and special presentations from finance industry leaders. Personal loan APRs at SoFi range from 5.99% to 20.94% with loan repayment periods of anywhere from 2 to 7-years.
No origination fees, late fees, or early pay-off penalties
Good digital experience online and through the app
Access to the SoFi financial community
Offers loan amounts up to $100,000 for those who qualify
High minimum credit score requirements
No same-day funding
Why choose: SoFi is an excellent lender for borrowers with good or exceptional credit who are looking for large loan amounts with competitive rates. Additionally, SoFi may be a good option for someone who is looking to take advantage of the free financial advising and all the other educational resources available.
Best Egg – 600 min score
Top pick for: Fair credit borrowers
Qualifications Needed: Best Egg is a trusted lender that caters to borrowers with fair credit scores. The minimum credit score requirement for a personal loan through Best Egg is 600. Additionally, there is no official minimum income requirement, however, it can be expected that some sort of income may be required to qualify. Loans at Best Egg range from $2,000 to $50,000 with APRs that range from 5.99% to 29.99%. Best Egg offers 3 or 5-year personal loans that may require an origination fee of 0.99% to 6.99%.
Same-day loan approval with next-day funding
Customer support is available 6-days a week via live chat or phone
Loans are available for fair credit borrowers
Loans come with an origination fee that can range from 0.99% to 6.99%
Personal loans max out at $50,000
Why choose: Best Egg may be an excellent lender for fair credit borrowers who are looking for immediate financing to get their home repair project started as soon as possible.
Prosper – 600 min score
Top pick for: Fair credit borrowers that need flexible terms
Qualifications Needed: A personal loan through Prosper requires a minimum credit score of 600. Prosper offers 3 and 5-year personal loans of up to $40,000 with APRs that can range from 7.95% to 35.99%. Additionally, most loans come with an origination fee that can range from 2.41% to 5% and once approved, funding can take an average of 5 business days.
Loans available for fair credit borrowers
No prepayment penalty
Joint loan applications accepted
Quality online experience
Higher interest rates
Why choose: Prosper is a good option for a fair credit borrower who likes the idea of supporting one of the first established peer-to-peer lenders to come out on the online lending market. Loans are funded by investors rather than through a financial institution. When an applicant applies for a new personal loan, they have a maximum of 14-days to have their loan 70% funded or the loan gets denied. However, most borrowers who meet all the minimum criteria for a Prosper personal loan are approved in the first 3-days.
Upgrade – 560 min score
Top pick for: Challenged credit borrowers
Qualifications Needed: To qualify for a personal loan through Upgrade, a potential borrower should have a credit score of at least 560. For those who qualify, Upgrade offers loan amounts that range from $1,000 to $50,000, with loan repayment periods ranging from 3 to 7-years. Average APRs on these personal loans fall somewhere between 6.94% and 35.97% and they may come with an origination fee that ranges from 2.9% to 8%.
Fast loan approval and funding
Lower minimum loan amount for smaller home repairs
Loans available for challenged credit borrowers
Why choose: Upgrade is a great lender option for borrowers who may not have the best credit. Additionally, since Upgrade can fund loans as small as $1,000, either the same or the next day, then they may be a good option for a homeowner looking for money fast to make an emergency repair on their home. For example, a burst pipe, a broken down furnace, or a broken garage door.
Axos Bank – 700 min score
Top pick for: Good credit borrowers
Qualifications Needed: Axos Bank offers 1 to 5-year personal loans for amounts that range from $5,000 to $50,000 for borrowers who have a credit score of at least 700 and a minimum income of $48,000/yr. Axos personal loans come with an origination fee that can range from 0% to 2%, and APRs that may fall between 7.99% and 35.97%.
No early pay-off penalty
Personal loans are available for any term length between 1 and 5-years
High minimum credit score requirements
Why choose: Axos Bank may be a good choice of a lender for homeowners with good to excellent credit that are comfortable with a 100% digital banking experience.
OneMain Financial – 600 min score
Top pick for: Borrowers with less than perfect credit that need fast funding
Qualifications Needed: OneMain Financial offers 3 to 5-year personal loans that range from $1,500 to $20,000 to applicants with a minimum credit score of 600 and a minimum income of $7,200. Personal loans from OneMain Financial can come with an origination fee that ranges from 1% to 10%, depending on what state you live in, and APRs that may be somewhere between 8.98% and 36%.
Short approval process
Same or next-day funding available
Loan options are available to borrowers with fair credit or worse
Higher APRs and more fees
Limited customer support
Why choose: OneMain Financial may be a great lender option for a homeowner with less than perfect credit who needs money quickly to take care of an emergency home repair. With loan amounts as low as $1,500, OneMain Financial may be the lender you contact for a quick same or next-day influx of cash to take care of some immediate expenses.
LendingPoint – 600 min score
Top pick for: Low-income borrowers
Qualifications Needed: LendingPoint is a trusted lender who extends 2 to 4-year personal loans that can range anywhere from $2,000 to $25,000. The loans typically come with an origination fee that can be anywhere from 0% to 6% and APRs that range from 15.49% to 35.49%.
Loans available for borrowers with little or no credit history and/or low credit scores
No early pay-off penalty
Funds can be disbursed quickly
Why choose: LendingPoint may be a good lender option for a young homeowner who may have a few blemishes on their credit report. Also, LendingPoint is able to fund their loans quite quickly, so, someone looking for a quick increase in cash flow to make some urgent home repairs may find that LendingPoint is able to accommodate them.
What alternatives are there to financing home improvements?
If you are not interested in taking on a personal home improvement loan or any other financing option like a home equity loan or a cash-out refinance, then there are only two alternative options that you could consider. First, you can always take the time to save the money you need to make the home improvements and pay cash. You can also decide to limit the scope of your home improvement projects by breaking them up into smaller portions and completing them one at a time when you have the money available. The second option is to ask for a loan from a family member.
Is it a good idea to finance home improvements or use an alternative option?
As always, the smartest way to fund a home improvement project is by saving and paying cash. However, with so many affordable financing options available, if you are looking to complete some home improvement projects right away, financing those projects may be the better choice.