How to Choose the Right Loan for Home Improvements in 2026

Table of Content

• Key takeaways
• What is a home improvement loan?
• Types of home improvement loans
• Home improvement loan options for bad credit
• Home improvement loan rates in 2026
• How do home improvement loans work?
• What do you need to apply
• Home improvement loan calculator
• How much do home improvement projects cost?
• How to choose the right loan option
• FAQ

Disclaimer: This article is for informational purposes only and does not constitute financial advice.

What Is a Home Improvement Loan?

Home improvement loans, also known as home renovation loans and home remodeling loans, are borrowing options designed to finance home upgrades and repairs.

These loans can be either secured or unsecured. With unsecured loans for home improvement, you can typically borrow up to $100,000, while secured options may offer higher amounts that are determined based on your assets’ value.

The repayment period is usually fixed and can be between 12 months and 30 years, depending on the loan type.

Types of Home Improvement Loans

Here are common loan types people usually use to finance their home renovation projects.

Personal Loans

Personal loans are financing products that can be used for a wide range of needs, including home improvements. Most personal loans are unsecured, meaning your property isn’t at risk if you have trouble repaying. Some lenders may also offer secured options, especially for borrowers with bad credit.

The amount you can borrow typically depends on your income and credit history. APRs are fixed and depend on the lender and a borrower’s creditworthiness. As of February 2026, the average APR on a 24-month personal loan offered by a commercial bank was 11.4%. Borrowers with bad credit tend to get higher APRs. Credible analysis across 374 closed bad credit personal loans from June 2025 through May 2026 found that the average APR for these products was around 29.85%.

Repayment is made in equal monthly installments, so it becomes easier to budget and plan your expenses.

• Loan amount: $1,000–$50,000, with some lenders offering up to $100,000 or even $250,000
• Repayment terms: 12–84 months
• Collateral: Usually none. Some lenders may require collateral if you have bad credit
• Min. credit score: 580

Home Equity Loans

A home equity loan is also known as a second mortgage. It provides funds against the equity you own in your house. The equity is calculated as the amount your property is currently worth, minus your primary mortgage balance.

The amount you can borrow is based on the combined loan-to-value (CLTV) that accounts for both a primary mortgage and all the existing obligations secured against your property, including the new home equity loan. Say your house is worth $400,000. Your primary mortgage balance is $250,000, and you want to borrow $50,000 with a home equity loan. Your CLTV is calculated as follows:

CLTV = (Outstanding Mortgage Balance + New Home Equity Loan Amount) / Current Appraisal Home Value
Or
CLTV = ($250,000 + $50,000) / $400,000 = 0.75 (or 75%)

Most lenders cap CLTV at 80%–85%. If your CLTV is 75%, lenders are likely to approve you. Suppose that your lender’s CLTV cap is 85%. The amount you can borrow is determined using this formula:

Maximum Loan Amount = (Your CLTV Cap × Home Value) – Current Mortgage Balance
Or
Maximum Loan Amount = (0.85 x $400,000) – $250,000 = $90,000

You receive the money from a home equity loan in one lump sum and repay it in fixed monthly installments over an agreed-upon period. As this loan is secured by your house, it carries the risk of losing your property if you default.

• Loan amount: up to 80%–85% of your home’s appraised value minus your outstanding mortgage balance
• Repayment terms: 5–30 years
• Collateral: Yes, your house
• Min. credit score: 620

Home Equity Lines of Credit (HELOCs)

A HELOC combines features of a home equity loan and a personal line of credit. This revolving credit option provides you with a specific limit. The maximum limit is also calculated based on the equity you own in your house, your current mortgage balance, and the CLTV.

HELOCs usually have two major phases: a draw period and a repayment period. During a draw period, you can tap into the funds up to this limit, repay, and use the money again. You are allowed to make interest-only payments, with interest applying only on the amount you actually use.

After the draw period ends, you can no longer borrow funds and must pay off your outstanding balance plus interest. HELOC APRs are usually variable and can fluctuate over the life of the loan. According to the Bankrate study, the national average HELOC rate is 7.47% (as of June 17, 2026). APRs may be higher as they include fees.

• Loan amount: up to 80%–85% of your home’s appraised value minus your outstanding mortgage balance
• Repayment terms: a 10-year draw period followed by a 20-year repayment period
• Collateral: Yes, your house
• Min. credit score: 620

Learn more about the differences between loans and lines of credit.

Cash-Out Refinance

A cash-out refinance lets you replace your current mortgage with a new, bigger one. The difference between the two balances is paid out as cash that you can use for a range of needs. Homeowners often rely on this option to finance a wide range of home renovation projects, since it allows for a tax deduction of the interest paid on the portion used for home improvements. However, similarly to a regular mortgage, closing costs usually apply. To qualify, you typically need to have at least 20% of equity in your home.

• Loan amount: up to 80% of your home’s value
• Repayment terms: 15–30 years
• Collateral: Yes, your house
• Min. credit score: 620

FHA 203(k) Rehab Loans

The FHA 203(k) loan is a mortgage insured by the Federal Housing Administration that combines both your home purchase and remodeling financing. Under this program, a portion of the approved amount is paid to the seller or your current lender, while the remaining funds are placed into an escrow account until the rehabilitation is complete. There are two types of 203(k) loans: limited, for minor improvements or repairs, and standard, designed specifically for major rehabilitation.

• Loan amount: up to $75,000 (for a limited 203(k) loan) or based on the area’s FHA loan limits (for a standard 203(k) loan)
• Repayment terms: 15 or 30 years
• Collateral: Yes, your house
• Min. credit score: 580

HUD Title 1 Property Improvement Loan Program

HUD Title 1 property improvement loans are fixed-rate, government-backed loans that allow homeowners to finance small and large renovation projects with no home equity needed. The funds can be used for repairs, energy-efficiency upgrades, and accessibility modifications.

Loan amounts and repayment terms depend on the type of property you have. As no minimum equity is required, this program can suit new homeowners. You can apply through any HUD-approved private lender, including banks and other financial institutions.

• Loan amount: up to $25,000 for a single-family house, up to $25,090 for a manufactured house on permanent foundation classified and taxed as real estate, up to $7,500 for a manufactured house classified as personal property, and up to $12,000 per living unit for a multi-family property (up to $60,000 in total)
• Repayment terms: up to 20 years
• Collateral: required for loans over $7,500; none for smaller amounts
• Min. credit score: depends on a specific lender, usually 620

Home Equity Conversion Mortgage for Seniors (HECM)

This FHA-insured mortgage is designed for homeowners aged 62 and over. It allows eligible seniors to borrow against their home equity. HECM proceeds are not taxed as income, and no monthly mortgage payments are required. During the loan period, homeowners must pay property taxes and insurance, and maintain the home. The loan is repaid when the house is sold once a senior moves out permanently or passes away.

If the home sells for less than the loan balance, FHA covers the loss. The program is only available through FHA-approved lenders. However, HECMs reduce the equity you leave to heirs and require mandatory HUD-approved counseling before applying. Compare carefully with other options.

• Loan amount: up to $1,249,125 (as of 2026 limits)
• Repayment terms: No fixed repayment period or maturity date
• Collateral: Yes, your house
• Min. credit score: None

On-Bill Loan Programs

These programs allow utility customers to borrow money for energy improvements and repay over time through their utility bills. They support customers who cannot pay for projects upfront or afford an increase in bill payments. On-bill loan programs typically use public money or utility shareholder funds to finance low- or zero-interest loans for clean energy projects.

Amounts, interest rates, and repayment periods depend on the state and your particular utility company. For example, the Illinois Energy Efficiency Loan Program offers loans of up to $20,000 for 1, 3, 5, 7, or 10 years with a fixed interest rate of 7.49%. The Butler Rural Electric Cooperative Energy Efficiency Loan Program, available to customers in Southwestern Ohio, finances energy-efficiency projects of up to $25,000 and KOHLER Standby Generators of up to $20,000 with an interest rate of 4.25%.

Roof Financing Programs and Contractor-Offered Installment Plans

Many contractors and roof companies partner with third-party lenders to offer specialized payment plans that allow you to pay for a renovation in regular installments. This eliminates the need for upfront cash while allowing you to access all the benefits and investment returns associated with home improvements. Interest rates and terms vary widely, so review them carefully before committing.

Be aware that ‘0% promotional’ contractor financing often becomes deferred-interest, meaning the full retroactive interest applies if you don’t pay off in the promo window. Ask for the APR in writing and the consequences of late or missed payments.

Government Programs

Many counties offer loan programs for structural repairs like plumbing and heating, often on an interest-free basis. For example, you can get up to $17,500 or $25,000 for improving a one- or two-family home, respectively, in Bergen County, New Jersey, while rural residents nationwide can apply for up to $40,000 under the USDA Section 504 Home Repair program. Contact your City Hall and ask about the community development options available in your area.

Home Improvement Loan Options for Bad Credit

While most lenders ask for a credit score of at least 580–620 to approve you for home renovation financing, there are still options available to people with poor or no credit. Besides FHA-approved lenders, multiple online loan companies provide alternative financing options.

However, these loans usually carry very high costs due to the risks associated with lending money to people with low credit. Some options, such as bad credit installment loans, may have APRs of up to 200%*. Treat these loans only as a last-resort option and consider alternatives first.

If you need money for a minor project, consider payday alternative loans (PALs) from credit unions. Depending on the PAL type, you can either get $200–$1,000 for 1–6 months (PAL I) or borrow up to $2,000 for up to 12 months (PAL II). Interest rates are capped at 28% plus an application fee of up to $20.

*Under the Military Lending Act, APRs on most consumer loans for active-duty service members and their dependents are capped at 36%.

Home Improvement Loan Rates in 2026

The table below shows average APRs** on different loan types to help you better understand what to expect:

**Availability, rates, and terms vary by state. Confirm with lenders licensed in your state.

Loan Type	Average APR	Interest Rate Type	Where to Get
Personal Loan	5.99% – 35.99%	Fixed	Banks, credit unions, and private lending companies
Home Equity Loan	5.49% – 10.75%	Fixed	Banks, credit unions, or mortgage lenders
Home Equity Line of Credit	5.24% – 7.51%	Variable	Banks, credit unions, or mortgage lenders
Cash-out Refinance	6.5% – 8.5%	Fixed	Major banks, online lenders, and specialized mortgage companies
FHA 203(k) Rehab Loan	6.6% – 7.1%	Can be both fixed-rate and adjustable-rate	FHA-approved lenders, including banks, mortgage companies, and credit unions
HUD Title 1 Program	Depends on the common market rate in the area	Fixed	HUD-approved lenders, including banks, credit unions, and specialized mortgage companies
Home Equity Conversion Mortgage for Seniors	7.5% – 9.4%	Fixed-rate and adjustable-rate mortgages	FHA-approved lenders, including banks, online lenders, and specialized mortgage companies
Small Emergency Loans	16.0% – 35.99% or higher	Fixed	Alternative lenders and online loan companies

How Do Home Improvement Loans Work?

Like most loans, home improvement financing allows you to get a lump sum from a lender instead of paying for every associated cost out of pocket. Then, you need to repay it over time, typically in equal monthly installments. This structure reduces the financial impact by spreading payments more evenly, so they do not significantly affect your budget.

The loan procedure varies by lender. Here are the common steps you need to take to apply:

1. Pick the loan type. Start by choosing the right loan option that suits both your project and financial capabilities. Determine how much money you need for the renovations, and use a loan calculator to estimate a manageable repayment period with an affordable monthly payment.
2. Do your research. Review loan offers online and pre-qualify with multiple lenders offering the loan type you choose. Compare their terms, rates, and eligibility criteria, and choose an offer with the best possible conditions.
3. Submit your full application. Each lender has its own application process. Some of them may allow you to apply online, while others will require you to visit their branch to provide supporting documents.
4. Wait for a lender’s decision. At this point, the lender verifies your application details, often through a hard credit check that will temporarily affect your credit score. Depending on the lender, the decision-making process may take from a few hours to several days.
5. Review the terms. If approved, check the final loan conditions since they may differ from the terms offered at the pre-qualification stage. If the offer works for you, sign the agreement to access the loan funds.
6. Receive your money. Depending on the loan type, you will either get a lump sum in your bank account or receive access to a specific line of credit.

What Do You Need to Apply

The exact set of documents depends on the type of loan and the lender you work with. Here’s a common checklist of requirements:

• Be at least 18 years old (62+ for HECM)
• Valid ID and SSN
• Proof of steady income (W-2s, pay stubs, bank statements, tax returns, etc.)
• Proof of address (utility bills, mortgage agreement, etc.)
• Detailed cost estimates and project plans
• Proof of homeowner’s insurance
• For secured loans, information on the existing equity you own

Additionally, lenders may check your credit score and debt-to-income ratio. Make sure to read the specific terms and requirements.

Home Improvement Loan Calculator

Before you get a home improvement loan, make sure you understand the terms, monthly payments, and the total cost. A loan calculator can help you compare offers and estimate whether the loan option you are considering fits your budget.

How Much Do Home Improvement Projects Cost?

Home improvement costs can vary widely, depending on the project, its size and complexity, type of unit, home size, chosen materials, and contractors’ rates in your county or state. We only provide estimated price ranges based on national averages or contractors’ statistics. Review actual costs in your area before planning a home improvement budget.

Kitchen Remodeling and Bathroom Renovation

These two are considered the most expensive projects as they involve structural overhauls. Kitchen remodeling costs include cabinets, appliances, materials, labor, and more. According to the Remodeling 2025 Cost vs. Value Report, the average project cost was around $28,500–$164,100 in 2025.

Bathroom renovation often involves plumbing, electrical updates, waterproofing, and replacing all fixtures. The same report shows that the average cost of this project was nearly $26,100–$111,300.

Roofing

A new roof usually comes with a big price tag. You can spend nearly $51,900 on a premium-material, metal roof with superior durability, long service life, and high energy efficiency. The average cost of asphalt roofing shingles is around $31,900.

Window Replacement

As of 2025, homeowners paid around $22,070 for vinyl window replacement and nearly $26,800 for wood window replacement.

Flooring

Flooring renovation may include hardwood floor restoration and refinishing ($3–$8 per square foot), dustless sanding ($3.50–$6 per square foot), carpet replacement ($3–$11 per square foot), hardwood floor installation ($6–$25 per square foot for both labor and material), repair, and maintenance.

HVAC Installation or Replacement

HVAC replacement can cost between $5,000 and $22,000. The average price is $7,500. Replacing or adding ductwork can add $3,000 or more to the final price. Actual costs depend on the unit type and home size.

Water Heater and Plumbing Repair

Common plumbing repairs, such as a leaking faucet, clogged drain, running toilet, or drain cleaning, usually cost around $100–$400, depending on the repair type. Water heater repair can cost you nearly $230–$1,020, while pipe repair can be anywhere from $500 to $5,000. If you need to install a water heater, the average cost for a standard tank can be between $1,600 and $2,400. Tankless installation can range from $2,400 to $5,400.

How to Choose the Right Loan Option

Before you decide what product meets your needs, consider the following factors:

• What you need the money for. Create a clear renovation plan and list estimated costs for each project. This will help you calculate an approximate amount you need and find a lender that can cover it. Some projects may also be eligible for government-backed programs, allowing you to save money on interest.
• Whether you are ready to pledge an asset. Many home renovation loans are secured and require collateral, usually your house. You typically need to own at least 20% of the equity, and you risk losing your home if you default on the loan. Evaluate the risk carefully and only enter into secured loan deals if you are sure you will be able to pay on time.
• What lenders offer. Each lender sets its own requirements and terms. Before choosing one, prequalify with at least 3–5 lenders and compare their offers. Look at the APRs, fees, repayment options, and any other conditions. Most lenders use a soft credit inquiry at the prequalification stage, which does not affect your credit score. A hard inquiry occurs only after you submit a full application.
• Where you stand financially. You need to borrow money responsibly to avoid debt traps, foreclosures, collections, and credit consequences. Budget carefully for repayment and avoid long-term debts that exceed 20% of your annual net income and 10% of your monthly take-home pay.
• Whether the lender is legitimate and trustworthy. Verify the lender’s license and read customer reviews before applying.

FAQ

Should I choose a home improvement loan vs. a home equity loan?

A personal loan for home improvement will work best for smaller projects. It’s also an option for people who do not want to pledge a house to secure the needed funds. Home equity products are more common for a larger scope of work. They also come with lower interest rates and longer repayment terms, making it easier to manage monthly payments. Note that a longer payback period results in a higher total cost of borrowing.

What are the best home improvement loans for bad credit?

People with less-than-perfect scores can consider products backed by FHA or HUD, along with secured loans, such as home equity loans or HELOCs. They usually come with more lenient requirements, but also involve the risk of losing your house.

If you need money for a smaller project and do not want to put your property at risk, bad credit personal loans from online lenders may also help. However, their interest rates are usually high. Consider alternatives first and avoid options with triple-digit APRs.

Is it a good idea to take out a loan for home improvements?

It depends on your situation. Sometimes, using a loan to cover the home improvement costs can help when you do not have money to pay upfront but want to increase your home’s value or make your house a safer place to live. Financing energy-efficient renovations also allows you to save money on utility bills over time. Before committing, assess your situation carefully and make sure you understand the costs. Choose a loan with a reasonable APR and a repayment period that balances both the monthly payment and the total interest paid.

What are the requirements to get a home improvement loan?

Most lenders ask you to provide your ID, SSN, proof of income, proof of address, and a detailed project plan. For secured loans, you will also need documents that show how much equity you own in your home. Each lender may also have its own age, income, credit, and debt-to-income ratio requirements.

What is the maximum amount for home improvement loans?

When it comes to loans backed by Fannie Mae and Freddie Mac, the conforming loan limit in most US counties is set at $832,750, but it can reach $1,249,125 for high-cost areas. Alaska, Hawaii, Guam, and the U.S. Virgin Islands have their own statutory 50%-higher baseline. If you apply for a HECM, the maximum amount you can borrow is also $1,249,125.

However, many loan programs set their own caps within these figures. Personal loans are usually limited to $100,000, while secured loans determine the amount based on the equity you own in your house. Additionally, lenders pay attention to your current income, debts, and credit when calculating the maximum amount you can borrow.

Are there zero-interest home improvement loans?

Most traditional loans for home improvements charge APRs and extra fees. If you are looking for an interest-free option, consider 0% contractor-offered financing or seek community assistance programs and state-based grants for home improvement. Some credit cards and lines of credit may also provide zero-interest promotional periods for 12–24 months.

What are the benefits of home improvement loans?

Home improvement loans allow you to split the total cost into equal monthly installments and repay over a long period without the need for upfront cash. Some projects may also help homeowners increase their home’s value. Some options require no collateral and are available to borrowers with bad credit, though their APRs are typically much higher, and the total cost can be substantial.

What are the potential drawbacks of home improvement loans?

The major drawback is the interest that applies, increasing the total amount paid over the life of the loan. As most products have long repayment periods, the debt will stay with you long after the project is complete, and the longer the term, the more interest you pay over time. If you get a secured product, you also face the risk of losing your property if you default.