What is a Home Renovation Loan & How Does it Work?Thinking about making home improvement updates to your home, but don't know where to start? Learn about home renovation loans for additions, remodels, and more.
Planning a home renovation is a big project. There’s the budgeting, calling contractors, and securing financing. However, renovation projects can not only increase the equity on your home, but they can have a massive impact on the place you call home.
You want to do it right, and while you’re investing now, you want to make a profit when it comes time to sell. And whether you’ve been dreaming of your next home renovation project since you’ve moved in, or you’ve just recently caught the renovation bug, selecting the right projects for your home, and the financing that best fits your budget, are important to consider before you start.
If you’re ready to retrofit the basement, remodel your kitchen, or even update your home’s energy use, there’s a best option to pay for it.
Which upgrades can I use a home renovation loan for?
Home renovations can be small projects like a rewiring, but they can also be massive restorations that transform your entire house, like a new addition or a kitchen remodel. For some small projects like a fresh coat of paint, you may be able to tap into your savings, but for larger projects, drying out a hard-earned savings account might not be the right choice.
Even if you’re still shopping around for an estimate, understanding what you can do with a home renovation loan will help you make decisions. Here are some types of upgrades you can make to your house with a renovation loan:
Adding a new deck or porch
Not only could you boost curb appeal with a new deck or porch, adding an addition can boost your home’s value.
Kitchen or bathroom remodel
Itching to finally replace your dated kitchen cabinets with something fresh? Kitchen and bathroom remodels are among the most expensive renovations, but can significantly add up in value when you focus on utility and style.
So maybe that property built in the 1970’s requires major restorations, like replacing deteriorating posts and bringing insulation up to code. These projects count as home renovations too!
Rewiring and energy upgrades
An energy upgrade can save hundreds of dollars a month on energy bills.
Why should I take out a personal loan for home renovations?
You have so many options available to finance your home renovation projects—but which one is best for you?
If you have access to a credit line, paying for large home renovations with a credit card is an easy option. With credit cards, you have a limit to how much you can place on the card, and you have a set time period between making the purchase and your bill’s due date to pay off the purchase before compounding interest, which can exponentially increase the cost. And while a credit card is quick, it is anything but easy if there’s a high interest rate and there's short period of time to pay it off.
Bottom line: With most credit cards, you’ll face high compounding interest and a single due date for the full cost at the end of the month.
Home Equity Loans and Lines of Credit
Home Equity Loans and Home Equity Lines of Credit (HELOC) are secured loans that banks issue when customers want to invest in their home. Getting a Home Equity Loan or HELOC means not only placing your home as collateral, but it will usually require a home appraisal, which can take weeks to request and process.
In addition to the cost of waiting for a home appraisal, the process of obtaining a Home Equity Loan or HELOC usually includes fees and closing costs. Even if you plan to build equity on your home, you still may spend a lot of money upfront just to get a Home Equity Loan or HELOC, not to mention actually paying for your repairs.
Bottom line: With Home Equity Loans and HELOCs, you’ll not only pay for upfront appraisals, but you’ll likely need to wait weeks to months to be approved, and deal with a HELOC variable interest rate.
FHA 203(k) Loans
203k FHA Mortgages are an option for homeowners who know they’re purchasing a house that needs a lot of renovations before they move in. These loans are insured by the U.S. Department of Housing and Urban Development. If approved, these loans typically have low interest rates, however, they require a lot of paperwork and appraisals. All renovations, large and small need to be completed in six months.
Bottom line: You’ll be filling out a ton of paperwork to make a 203(k) renovation loan work, with very strict terms, and little flexibility on how you can use the money.
Like credit cards, personal loans are quick ways to access the money you need to make renovations, but they usually come with lower rates. With a personal loan, you’ll get to repay your loan with a single, fixed monthly payment, with a fixed Annual Percentage Rate (APR) over the course of a few years. Best Egg Home Improvement Loans don’t need appraisals, long processes, and you could have your money in as little as one business day. Use your money the way you need to—paying your contractor, designer, or paying for materials to get the job done yourself.
Bottom line: With a Best Egg personal loan, you can access money quickly and make paying for home renovations simple.
Begin planning & budgeting for your home renovation today
You shouldn’t have to jump through hoops just to pay for the projects you want to get started on. While home renovations need smart planning and budgeting, you’re more than prepared to take on this new challenge. Best Egg wants to help you from paying more for your next home renovation project. Check your rates now and see what you can do with a Best Egg Home Improvement Loan.