6 Home Improvement Financing Options and How to Plan

Whether aiming to complete a home improvement project this year or do some necessary replacements or give your home a major facelift, learn how to find the right home improvement financing options that save you the most money.

Since many renovation projects tend to come with a big price tag, many homeowners turn to financing to help them fund their home improvements. There are many loans for home improvements to choose from and some may work better than others. This guide will walk you through everything to know about home renovation loans.

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Assess Your Home Improvement Needs

Before researching what types of loans for home improvement you need, it’s important to understand what type of project you want to start and what your home’s needs are. Then, you can better understand which home repair loan suits your needs.

When assessing what loans for house repair or replacements there are, consider the following steps:

  • Evaluate Home Improvement Needs: First, evaluate what type of project you need to be done. For example, a bathroom repair will affect how you apply for a home improvement loan much differently than doing an entire basement remodel.
  • Schedule Contractor Inspections: Next, schedule a contractor to inspect your home. This way, you can fully understand what the structure of the space is like, what kind of work is necessary, and if the area has other potential problems or other types of work needed.
  • Prioritize by Urgency and Budget: After the contractor inspection, you’ll be quoted for the cost of the work. You can use this quote to determine if you need a loan or have another way of paying for the project. If you need a loan, home improvement lenders and their rates often depend on urgency, budget, and the specifics of your home.

DIY vs. Contractor Projects

Many homeowners may attempt to undertake projects themselves, electing to DIY instead of hiring a contractor. While there are some renovations that you may be able to do yourself, there are many more where it’s easier, more cost-effective, and safer to hire a contractor. When researching whether you want to hire a contractor or do it yourself, here are some considerations to keep in mind:

  • Project Complexity and Expertise: If your home project requires a lot of skill like rewiring your electrical system or adding a new room to your house, it’s probably much safer and cheaper to hire a professional.
  • Initial Costs vs. Long-Term Savings: Many DIYers only think about immediate cost savings when trying to undertake a project themselves. However, if you need frequent repairs or a full replacement in the near future to correct a mistake from your DIY project, it’s better to hire a contractor from the start.
  • Potential Risks: It’s also important to consider the risks. Many renovations pose a danger, and although a regular homeowner may not know how to stay safe, professionals possess the necessary knowledge and precautions to minimize risks.

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Set A Realistic Home Improvement Financing Budget

When looking for the best home improvement loan rates, you’ll need to set a realistic budget. Many things like the scope of the project, where your house is located (in city limits vs. on your own land, etc.), and the state of the housing market can affect what type of personal loan for home improvement you’re able to get. It’s also important to remember the long term costs vs. value of the project if you plan to sell your home one day.

Here are some common price estimates for the following projects. Keep in mind, that these will change based on the criteria listed above. The scale of a replacement or remodel, and the size of the project, and materials used greatly influences the price so consult with a service provider in your area for more specific numbers:

  • Roof Replacement: $29,100 – $53,000
  • Window Replacement: $20,000 – $25,000
  • Gutter Replacement: $3,000 – $8,000
  • Kitchen Renovation: $28,000 – $153,000
  • Bathroom Renovation: $41,000 – $81,000

Plan Ahead For Home Improvement Financing

Getting a home improvement loan also depends on how you plan for financing and the project as a whole. Replacing your home’s windows, for example, is a better idea during the spring months, as winter or summer can affect your home’s heating and cooling, along with the contractors’ safety.

Some other key aspects to keep in mind when planning for loans for home improvement include:

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Create a Realistic Timeline

Depending on the project, the timeline will be drastically different. An entire bathroom remodel will take more time than a simple kitchen repair, for example. If you fail to create a realistic timeline, it will affect the length of your project, the amount of your FHA home repair loan, and any additional tasks that may be required.

Schedule Inspections and Quotes

As stated earlier, scheduling inspections before searching for HUD home improvement grants can help you stay on track and fully understand what your home needs. Inspectors and contractors can give you a starting quote for the renovation and ensure that everything else is in the best condition before starting. This can also give you a better idea of how much your financing needs to be.

Explore Smart Home and Energy-Efficient Options

There may be other energy-efficient options available before resorting to doing an entire remodel or renovation. This can help you keep costs down by doing some of the projects yourself (depending on the smart home options) and also reducing your home’s impact on the environment. Furthermore, this can even reduce the overall scope of the project, potentially reducing your overall budget.

Investigate Tax Credits and Incentives

Depending on the type of project and loan, you may be able to get tax credits or incentives. Some options, such as HUD home repair grants, may be eligible for these benefits, so make sure you research your options before starting.

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6 Home Improvement Financing Options to Know

Once you’ve done the research into what kind of project your home needs and have contacted the professionals for an official quote, it’s finally time to look into the best loan for home improvements for your needs. There are multiple financing options available, and understanding the unique considerations, benefits, and risks they all present is imperative.

Personal Loans

Personal home improvement loans let you finance your project without using your own home as collateral. They are also generally much quicker to fund than other options, as long as you qualify. However, depending on your credit score and other specifics, interest rates may be much higher than other loans. Also, the amount of time you have to repay these loans may be much shorter than other grants or financing, meaning this may lead to debt or trouble with money in the future.

a Black couple reviewing paperwork in front of a laptop and discussing home improvement plansInterested in upgrading your exterior? Minnesota Exteriors financing services can help transform your home.

Home Equity Loan

Homeowners receive a home equity loan, also known as a second mortgage, in a lump sum and repay it over a number of years with a fixed interest rate. However, this option carries many risks, including the fact that you put your home itself up as collateral.

This is why it’s important to know just how much you need from the loan to ensure that you don’t borrow too much and find yourself struggling to pay back interest on money you didn’t need.

Home Equity Line of Credit (HELOC)

Home equity lines of credit are a type of loan that you’re able to draw on as you need it. This means that a HELOC has a variable interest rate, as you only pay interest on the amount you’ve drawn out. While this option offers lower rates and more flexibility, you must also use your home as collateral, and you should be aware of other fees. This line of credit does give you a tax incentive if you use it for specific home improvement expenses.

Cash-Out Refinance

This type of loan option lets you refinance your existing mortgage into a higher amount and then use the difference between the old and new mortgage to pay for your improvement project. Similar to a home equity loan, you receive this as a lump sum and have a fixed interest rate. While you usually can only borrow up to 80% of your home’s current value, this option is good for homeowners who currently qualify for a better interest rate.

FHA 203(k) Rehab Loan

A FHA home improvement loan is multifaceted. You can use it to fund both the purchase of a home and the subsequent renovations under a single mortgage amount. Many individuals will use this type of loan if they want to buy and improve a fixer-upper.

One thing to keep in mind with this type of loan is that, while it does provide a fixed interest rate, you must start renovations on the house within 30 days of closing on the property, so it’s important to have everything planned out in advance.

Government Loans

Some government programs provide assistance and loans for home improvement remodels or projects. These often provide tax credits, especially if they include energy-efficient updates. These criteria are based on the homeowner’s needs, location, and credit. Government loans tend to have much stricter qualifications than others, but also often have smaller interest rates.

It can be tempting to take on home improvement yourself but some tasks, like DIY gutter installation, aren’t worth the risks.

Emergency Home Improvement Financing Considerations

Life doesn’t always let you plan or save up for a home improvement project. Sometimes, emergencies happen, such as roof damage, fires, or leaks. When faced with emergencies, personal loans or cash-out financing is often your safest choice for the best loans for home improvement.

These loans allow you to borrow money quickly and with less planning needed. Before you get started, however, make sure to call your contractor and insurance company to ensure that you meet all the requirements and can get the replacements done that you need.

Home Improvement Financing With No Savings or Bad Credit

Furthermore, if an emergency happens and you don’t have good credit, you may be overwhelmed with what options you have available. Thankfully, many lenders provide emergency loans to individuals in these situations. While you often may have to pay extra in the long run with high-interest rates, these allow you to get the necessary fixes and updates done quickly. There are several personal loans, debt consolidation loans, and potential government options available.

Get a FREE Quote with MEI Before Your Next Home Exterior Project

If you want to begin a home improvement project but don’t know where to start, our professionals at Minnesota Exteriors are here to help. We are the experts in renovations and replacements for residential homes, with over 75 years of experience to back us up. No matter if you need your roof, windows, gutters, siding, or doors renovated, our team can help you get the home you’ve always dreamed of. We also do storm damage fixes and insulation renovations.

Get in touch with us or explore our blog for more information about how we can help. As the most trusted home improvement company in the Twin Cities, we are here to meet and exceed all of your expectations.