Home » Resources » Improving the Home » How Home Improvement Loans Work Home improvement loans are personal loans that enable homeowners to make upgrades and renovations to their homes. With a home improvement loan, upgrades such as new kitchens, roof repairs, and even swimming pools may be easier to complete. Owning a home is one of the most important investments you will make in your lifetime. With the significance of the investment that homeownership requires, homeowners may use home improvements to strengthen the price value of their home. Home improvement loans offer homeowners the funding needed to invest in their property with repairs and renovations. Homeowners wondering how home improvement loans work will find the answers to their home improvement funding questions below. How Do Home Improvement Loans Work? With the costs of improving or renovating a home being high enough to warrant significant budgeting, a home improvement loan may be a quick and easy way to fund upgrades to your home. Here are a few types of home improvement projects that could benefit from a home improvement loan. Home Maintenance At some point, a home’s internal and external amenities will need to be fixed or upgraded. As houses deteriorate due to age, weather, conditions, or location, homeowners need to have the funds available to complete emergency repairs. A home maintenance loan may ensure that homeowners can pay for emergency repairs such as hot water heater replacement, roof repair, damaged gutters, and damaged water pipes. Home Renovations Home renovations are an investment that may potentially increase a home’s value. The magnitude of investment that a home renovation requires may involve a great deal of planning, budgeting, and securing financing. Whether you are adding a new deck, remodeling the kitchen, upgrading your home’s energy, or completing a full home restoration, a home improvement loan will offer the funding necessary to complete your next project. Alternatives to Home Improvement Loans When deciding how to fund your next home improvement, there are many alternatives to home improvement loans. When researching means of funding a home improvement project, here are some methods to consider. Home Equity Loans/Lines of Credit Home equity lines of credit (HELOC) and home equity loans are secured loans for borrowers investing in their homes. That means that borrowers using a HELOC or home equity loan will need to use their homes as collateral. With a HELOC or home equity loan, borrowers may need to request a home appraisal, a process that usually takes weeks to fulfill. Using a HELOC or a home equity loan may be a costly process that includes paying for home appraisals and possibly waiting a significant amount of time (anywhere from a few weeks to a few months). Borrowers who choose these funding methods also risk losing their home if they are unable to pay the loan. Credit Cards For those with access to a credit line, a credit card makes paying for home improvements fast and easy. Despite the ease that paying with a credit card presents, users should be aware that carrying a balance over to the next pay period may put them at risk of further interest charges. If the full balance isn’t paid off by the due date, compounding interest may drastically increase the balance on the credit card. 401K Loan for Home Repairs While it may be tempting to take a loan from your 401k for larger renovations, borrowing from your 401k also includes many potential long-term risks. The maximum amount a borrower is allowed to take from their 401k is $50,000, or 50% of their vested account balance. Borrowers under the age of 59 ½ will also receive a 10% tax penalty. Borrowing from your 401k is especially risky if your employment ends while an outstanding loan balance remains. Unless it is paid in full, the remaining loan balance is considered a taxable distribution. Using a Personal Loan to Fund Home Improvements Personal loans are another option for obtaining quick access to the funds needed to make home renovations. Borrowers can repay a personal loan with one single, fixed monthly payment that includes a fixed annual percentage rate (APR) over a term of a few years. Personal loans are a quick and easy way to access the funds you need for your next home improvement.