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Couple discussing financing their home renovation.

Key Takeaways:

  • A home improvement loan may be a great source for funding if you are looking to make home updates. Depending on your needs and your home’s equity, a HELOC, Home Equity Loan, Cash-Out Refinance, or even a credit card are options as well.
  • Make a plan for how you will go about renovating your home. Will you be doing the work yourself or hiring a professional? Don't forget to take costs and experience into consideration with both methods.
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Home renovation plans


How to Get Money to Renovate Your Home

Home improvements are a great way to increase the value of your home and create a space that is completely your own. Home renovations and improvement projects can easily cost thousands of dollars, so you may be unable to afford the costs out of pocket. This is common for most homeowners, so you're likely trying to find out how to get money to remodel your home. Many people take out home improvement loans, among other options.

Find out what your options may be and where to begin when making decisions regarding financing your home projects.


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Home renovations in progress


Home Improvement Loans

Home improvement loans are a type of loan for those looking to upgrade or remodel their home. Renovations can be a major expense, and many homeowners need additional funds to cover the costs. Home improvement loans can be used for updating just one room, fully remodeling your home, building an addition or covering necessities like a new roof or plumbing system.

Home improvement loans offer lending amounts ranging from as low as a few thousand dollars to as high as hundreds of thousands of dollars. This range allows homeowners to get the right amount of money for their projects. Because the lending amounts can vary, the interest rates on these loans can vary, too, mostly depending on your credit score and the lender you're borrowing from.

In most cases, home improvement or home addition loan options are technically personal loans. Because they can can be used for most projects, a personal loan is usually the go-to option for homeowners. Home improvement lenders typically review loan applicants quickly, and once they approve the borrower, many people see the money in their bank accounts within a few days. Homeowners can typically get this type of loan from banks, credit unions and various online personal lenders.


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Home renovations in progress


How to Get a Home Improvement Loan

While getting a home improvement loan isn't necessarily difficult, it's helpful to do your research beforehand so you know specifically what to look and ask for. Here are some steps to keep in mind when you apply for home improvement loans.

Couple securing a Home Improvement Loan

When applying for the loan, be sure to be specific about your needs.

Specify Your Needs

Most often, homeowners want a home improvement loan to complete a particular project. When applying for the loan, be sure to be specific about your needs. Letting the lender know exactly how you will spend the money can increase your chances of being approved for the loan.

For example, suppose you apply for a loan to replace all your windows, which will make your home more energy efficient and will increase its value. If you explain to lenders how you're using the money, they're more likely to see your request as a legitimate, credible use of the funds and are more likely to approve the request.

On the other hand, lenders are less likely to approve vague requests. If you bought a fixer-upper and need to make many repairs, it's better to itemize what needs to be done rather than saying you need to fix your house or replace everything. Overly broad or vague requests such as these could be for anything, and lenders like to know how you'll use the money.


Ask for a Specific Amount of Money

When renovating your home, you may be tempted to ask for extra money, either for unforeseen costs or for other needs. Home improvement lenders will be more likely to approve you for a loan if you ask for a reasonable amount of money. To avoid asking for too much money, do your research and get an estimate of how much you'll need for your project. Lenders will be more favorable towards applicants who ask for a specific amount to cover their project needs.


Check Your Credit Score

Home improvement loans, like any other loans, depend largely on your credit score. The better your credit score is, the more likely a lender is to approve your application. To prepare for your loan application, check your credit score ahead of time to ensure it's in good shape. Be sure to also check your credit report for any mistakes that may impact your loan application.

If your credit isn't where you want it to be or is less than ideal, you may still be able to find a lender to approve your loan, though it will be more difficult. If you have a low credit score, adding a co-signer may be an option that can help you get the money you need for your project:

  • Co-signers: Co-signers may help you get approved for a home improvement loan if you have low credit. Co-signers become responsible for making payments on your loan if you fail to or are unable to. They essentially serve as a backup, which increases the likeliness of getting your application approved. If you can get an individual with great credit to co-sign for you, it can improve your chances of approval and may even lower the interest rates on repayment.


Determine Your Home's Equity

When you're applying for a home addition or improvement loan, many lenders will consider your home's equity, which is how much your home would be worth if you sold it today minus any remaining amount you still owe. Research the value of your home so you can share this information with your lender.


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Home renovations in progress


Other Home Renovation Finance Options

Home Equity Line of Credit

A Home Equity Line of Credit (HELOC) is a second mortgage on your home, which means your house is collateral. The money comes from the equity of your home. With this finance option, you have what's known as a draw period, which is when you can use all or some of the money the lender agreed to loan you. After the draw period, you pay back the amount you borrowed.

HELOCs are beneficial if you're planning on selling your home soon because however much is left of the principal payments will be subtracted from the sale rather than paid out-of-pocket. Another benefit of a HELOC is flexibility, which is helpful if you're unsure of what the exact cost of your renovations will be. However, keep in mind that a HELOC will have a variable rate, so your payments may increase over time.

Couple investigating Home Equity Loans online

Similar to a HELOC, the money for a home equity loan comes from your home's equity.

Home Equity Loans

Home equity loans are related to HELOCs, though they're often better options if you know how much money you need for your home improvement project. Similar to a HELOC, the money for a home equity loan comes from your home's equity. However, these loans differ because they have fixed rates, the funds come in a lump sum and repayments start immediately.

Home equity loans may be the better choice for some homeowners because if rates are low, they can lock in a low interest rate for the term of their loan. Homeowners can also start rebuilding the equity on their houses as soon as they begin making payments.


Mortgage Refinancing

Refinancing your mortgage may allow you to lower your monthly mortgage payments and adjust the term of your loan. Opting to do a cash-out refinance on your home changes your mortgage terms and allows you to access some of your home's equity. Cashing out a portion of your equity enables you to pay for numerous things, including home improvements.

If you're thinking about refinancing, make sure it will help you before you do it. A cash-out refinance is best to do when you can get a lower interest rate than you currently have so you can save money. Additionally, you may want to ensure refinancing will reduce your monthly payments or shorten your loan terms. For help determining if refinancing is right for you, consult with your lender.


Credit Card

In some cases, using your credit card may be an option for covering home improvement costs. This option is useful for smaller projects. For example, if you're buying new flooring and are planning on installing it yourself, it may make more sense to cover the expenses with your credit card and make payments later. Depending on the size of the project, you may be able to cover all or some of your project costs.

When paying for home improvement projects with your credit card, be mindful of your credit ceiling. If you try to spend over your limit, you likely won't be able to purchase everything, and hitting your limit can harm your credit score. You should also be mindful of your credit card's interest rate. If you have a reasonable rate, this option may be viable for you, though if it's high, you may end up paying more than you can afford. Be smart about when you use your credit card.


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Factors to Consider When Renovating Your Home

Many factors can affect the price of renovating your home, including who does the work on your house. How you choose to renovate your home may play a role in how you choose to finance the project. Consider whether you'll pay a contractor to do the work or do it yourself.

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Using a Contractor

Things to consider when choosing a contractor:

checkmark Reputation

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checkmark Job estimate

Using a Contractor

Unless you have specialized knowledge, contractors are necessary for many big home improvements and renovations. Contractors can handle everything from the basics to complete remodels. Many contractors might want your business, though you should be picky about who you choose to work on your house. Here are some things to consider when choosing a contractor:

  • Reputation: The sheer number of contractor options can make it difficult to determine your best choice. One of the most important aspects of choosing the right contractor is considering their reputation. You should look for a contractor known for being honest, working hard and producing good work. Many contractors out there can be shady or have mediocre project results. Seek out someone with a good reputation.
  • Recommendations: Asking family and friends who they recommend can help you narrow your search. Many people use contractors for their home projects, so you may already know someone who can give you good recommendations or steer you away from contractors they had bad experiences with. Be sure to ask around before hiring a contractor.
  • Reviews: Reading a contractor's reviews can give you a good indication of the quality of work they do. Check their website or ask for previous client names that you can potentially contact. If others have had good experiences with a contractor, you're more likely to get quality work, but if they have a series of bad reviews and low-quality work, you're likely to experience the same.
  • Job estimate: You should look for a contractor who offers you a reasonable price for their work. Be wary of contractors with estimates that seem too good to be true, because they often are. At the same time, that doesn't mean the most expensive contractor will produce the best work. Compare a contractor's prices with their reputation and reviews to determine the best option for your budget.

    When choosing a contractor for your home improvement projects, be sure you pick a reliable contractor who can give you a good estimate. Having a good price estimate will help you when deciding how to finance your project.


    DIY Home Projects

    You may be able to do some home improvement projects yourself. Depending on your level of experience with tools and renovations, you might be able to tackle many projects on your own. For example, if you have experience with flooring, you may be able to replace your floors on your own time. DIY home improvement projects can help save you money since you won't need to pay a professional. However, be sure not to skimp on the products you use and only try projects you know about. Mistakes can be costly, so trust a contractor when necessary.


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Explore Home Improvement Loan Options From Midland States Bank

As you weigh your home improvement loan options, be sure to consider our finance options at Midland States Bank. Whether you're looking for a home improvement loan or are considering refinancing your mortgage, our team of professionals can help guide you through the process. Our loan process is quick and easy, so you can get started on your project sooner rather than later.

From savings accounts to home improvement loans, Midland States Bank can help you. Apply online now, or schedule an appointment with one of our bankers for more help!


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