Home Improvement Loan Information | Home Guides

Buying a home is a major investment, and one of the best ways to safeguard that investment is by putting money into home improvement. Homeowners who get a home improvement loan can add space with an addition, renovate a room or take care of major projects like a new roof or repairing a foundation. This investment will make a home more appealing to prospective buyers and also increase the home’s fair market value.


Homeowners use home improvement loans for many different types of projects. These include basic maintenance like repairs and cleaning, as well as spending to update a home and make it more modern or spacious. Buying energy-efficient appliances and fixtures is another option, which can also lower utility bills and make the home appealing to environmentally conscious buyers. An addition, which can range from a single room to a large wing, is a major home improvement but can add the necessary space for a growing family.


Homeowners have several options for choosing a home improvement loan, each of which may be best in certain circumstances. Cash-out refinancing is one option for homeowners who have built up equity. These loans deliver an up-front cash payment and refinance the home by replacing the existing mortgage with a new one. The homeowner continues to pay one monthly bill and can rebuild equity faster since the home will have a higher value after the improvement.

Second Mortgages

Second mortgages, which include home equity lines of credit and home equity loans, are another option for funding home improvements. Both types of second mortgages exist alongside a first mortgage rather than replacing it. While a home equity loan gives the owner a one-time cash payment, a home equity line of credit, or HELOC, is an open account that the homeowner can make charges against as needed, much like a credit card.

Government Loans

The U.S. Department of Housing and Urban Development offers home improvement loan guarantees that allow some new home buyers to finance home improvements when lenders are reluctant to offer a home improvement loan. The program, known as 203(k) Rehab Mortgage Insurance, can cover a full mortgage including improvement costs. Home buyers still get the loan through a bank or lending institution, but the federal government provides security for the lender.

Loan Amounts

One of the most important steps in getting a home improvement loan is shopping around for a contractor to complete the work. Different contractors may have their own ideas for how best to complete a job, and estimates for the total cost can vary widely. Borrowing only what the job costs reduces the homeowner’s debt and makes it easier to pay back the home improvement loan.

The loan agreement that a homeowner signs will include information about interest rates and monthly payments. Homeowners should understand all of this information before committing to a home improvement loan, since trouble paying back the loan can cause default and possibly foreclosure.

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