Your dream of homeownership has come true. Now, you want to make your house into your dream home.
Whether you are looking to protect your investment by installing a new roof, making your home more livable by adding wheelchair ramps, or increasing value by building out an exterior deck, a home improvement loan can help make your residential fantasies come true.
Once you’ve settled on the project, it’s time to figure out how to pay for it. A home equity loan is a no-brainer for some, but for those homeowners without equity, getting this kind of financing can feel tricky.
The good news is that while you may not be able to qualify for a home equity loan, you can secure other kinds of home improvement loans with no equity – namely, a personal loan, VA home improvement loans, and an FHA Title 1 Loan.
Is it a Good Idea to Get a Home Improvement Loan with No Equity?
For repairs that will improve the safety or value of your home, getting a home improvement loan, even without equity, makes a lot of sense. Consider the scope of your renovation and your credit score when you are shopping around to be sure you are securing the best possible deal for your project.
How to Finance a Remodel, Additions, or Repairs without Equity
1. Personal Loan
If you are looking to finance repairs, renovation, or a remodel without equity, a personal loan for home improvement might be the easiest, quickest, and most flexible solution for making necessary updates. Here are some basics on getting a personal home improvement loan with no equity:
To qualify: Applicants who qualify for the best rates and get approved typically have a healthy credit score and a low debt-to-income ratio1. Many other factors also dictate whether you may be eligible for a personal loan, with each lender taking different points into consideration and attaching a different degree of importance to each element.
Minimum and maximum loan amounts: The amount lenders will give you for a personal loan varies greatly, depending on your credit score and income. Most lenders offer loans from $3000 to between $35,000 and $40,000, with some offering even more.
Terms: Loan terms vary but are typically between 12 and 60 months. The longer the term you choose, the more interest you will pay over the life of the loan.
Interest rates: Interest rates for home improvement personal loans vary depending on your credit score and other qualifying factors, but on average, the federal government pegs a 24-month personal loan interest rate at 10.32 percent. Those with higher credit scores and lower income-to-debt ratio will get the best rates. Interest rates are generally fixed for personal loans, which means your repayments will be the same each month.
- Perfect for mid-range projects that cost between $15,000 and $50,000
- Qualifying is based on your credit score and other factors, like your employment status and even your level of education. These elements vary from lender to lender, but across the board, you don’t need to have equity in your home to be eligible.
- If you qualify, the approval decision is typically quick thanks to the advent of online lenders, like Eloan. You can get funds after approval as soon as the next business day.
- Personal loans allow you to make the improvement you want to your home without the limitations some other loan options impose.
- Interest rates may be higher than with other types of loans
- Qualifying can be difficult for these loans as they are unsecured loans, which means they aren’t linked to collateral. Owing to this, lenders want to make sure a borrower won’t default on their loan, so they often have high eligibility standards.
2. VA Home Improvement Loans with No Equity
If you are a veteran who purchased their home using a VA loan, you can apply for a supplemental loan to make improvements to your home. This type of loan can be added to your existing VA loan, can be part of a home refinance, or it can be a second, stand-alone loan.
Or, if you are a disabled veteran who needs to make adjustments on your home to accommodate your disability, you might qualify for Specially Adapted Housing (SAH) grant or the Special Housing Adaptation (SHA) grant for veterans.
Here are some basics on getting a supplemental VA home improvement loan with no equity (for more information about housing grants for disabled veterans, consult the US Department of Veteran Affairs):
- You must be a veteran currently living in the home that you are doing improvements on. Or, if the home isn’t inhabitable, you must intend to move into the home once the renovations are complete.
- You must have purchased your home with a VA guaranteed loan.
- If you plan to borrow more than $3,500 using a supplemental loan, you must be able to prove the value the improvements will add to the home, via an appraisal and proof of compliance.
Minimum and maximum loan amounts: The maximum about you can borrow using this type of loan is determined by the amount you previously borrowed to purchase your home, loan limited in your area, and the estimated value the upgrades will add to your home.
Terms: Up to a 30-year fixed term mortgage.
Interest rates: Interest rates for VA loans vary depending on the applicant’s credit score and income.
- You must be a veteran to qualify for a supplemental loan.
- Most luxury improvements, such as adding a swimming pool or a barbeque pit, aren’t covered. Instead, improvements are generally limited to alterations that improve the livability or utility of the property.
- You must use a contractor who is licensed and on the VA’s approved builder list
- Lenders often charge fees that could make using this type of loan more expensive than other options.
3. FHA Title 1 Loan
The Department of Housing and Urban Development’s FHA Title 1 Property Improvement Loan Insurance program is intended for minor to medium-sized home repairs for low- or moderate income earners. It is one of the easier home improvement loans to qualify for, even with no equity.
Here are some basics on getting FHA Title 1 loan with no equity:
- You have to have lived in the home for at least 90 days prior to applying for the loan
- Your income-to-debt ratio must be 45 percent or less
Minimum and maximum loan amounts:
- The maximum loan amount is $25,000 on a single-family home or $12,000 per unit on a multifamily structure, for a maximum of $60,000
- For a manufactured home on a foundation, the maximum is $25,090
- For a manufactured home without a foundation, you can borrow up to $7,500
Terms: The maximum loan term is 20 years for a single- or multi-family structure. For manufactured homes on a foundation, the term is 15 years, and 12 years for a manufactured house without a foundation.
Interest rates: Interest rates vary, but the terms are fixed for the life of the loan.
- Direct payment to the contractor. Once the work is done, you file a completion certificate and the lender pays the contractor directly.
- Quick decision. Lenders typically give applicants a decision in a few days.
- Offers more flexibility on income, credit, and debt-to-income ratios than some loans
- It allows for an option to access an unsecured loan of up to $7,500 to make small changes to your home that will make it more livable, including improvements such as upgrading kitchen appliances and flooring
- You generally need good credit to qualify; though, there is technically no minimum credit score required
- Loans of $7,500 or more must be secured, which means they will be tied to your mortgage (and if you default on your loan, you could lose your home).
- The scope of work you can perform is limited to projects that will substantially protect or improve the safety and livability of the property.
- Luxury upgrades or improvements that are purely cosmetic are NOT permitted using this type of loan
- Your home must be appraised by an FHA appraiser to determine if the proposed project meets the Title 1 lending guidelines.
1Subject to credit approval. Certain restrictions apply. Please consult with your attorney, financial consultant/planner, accountant, and/or tax advisor for advice concerning your particular circumstances. The information contained herein is for general informational and educational purposes only and should not be construed as professional, tax, financial or legal advice or a legal opinion on specific facts or circumstances. The information or opinions contained herein should not be construed by any consumer and/or prospective client as an offer to sell or the solicitation of an offer to buy any particular product or service.