How Do Home Improvement Loans Work?

Loans. They’re good for a lot of purposes. They help us pay for our college educations. They provide us with the ability to purchase a home. They assist us in acquiring other items we need or want. And they can also be the key to being able to afford improvements we would like to make to our home or to an investment property we own. Especially those improvements that cost a little more than we keep around for a rainy day.

Each year, thousands upon thousands of homeowners choose to take a home improvement loan to make changes to their home, from doing valuable projects such as improving a kitchen or bath, to adding new spaces to their existing house or making medically-necessary adjustments for someone who needs a more accessible space. Indeed, these loans can be used for any of these purposes and more.

So, how do you get one and how do they work?

In general, a home improvement loan works just like any personal loan. You determine an amount you need and you go to a lender and make the request.

As with other loans, these can be secured (backed by some other item of value) or unsecured. If you have stellar credit, you may be able to get an unsecured home improvement loan that doesn’t put a lien on your house or car. If your credit isn’t quite so good, chances are you will need to secure the loan. Your lender will make that determination. Costs associated with this kind of loan include an origination fee of likely about 5-6 percent. There may also be a cap on this loan as there are with personal loans in general but you may use it for whatever kinds of improvements you wish to make.

How Do Home Improvement Loans Work

If you are a homeowner with equity in your property, you might consider taking a home equity loan in order to use your equity to make those home improvements you wish to accomplish. A home equity loan literally allows you to use the difference between what you owe on your house and what your house is worth (or a portion of that amount) to make these desired improvements. For some, this could be a fairly sizeable sum, especially if you’ve owned your home for a long time and you’ve paid a lot towards the mortgage. Therefore, there’s no cap other than what’s available. However, you will find that fees are higher than with a personal loan. And, of course, if you have no equity in your home, you can’t go in this direction.

The government offers to back a form of home improvement loan known as Title I. Title I loans, which are guaranteed by the Department of Housing and Urban Development (HUD), can be used for certain designated improvements but not for luxury or recreation improvements such as a swimming pool. If you have iffy credit and/or a lower income, Title I loans might be the right choice for you as criteria is broader and interest rates are lower. Loans under $7500 are usually unsecured and higher ones will use your home as collateral. You’ll need to find an FHA-approved lender in your state to apply for this time of loan. Check out the HUD website for more info at

loan application

Finally, if you are a California veteran, you can opt to apply for a home improvement loan through CalVet. Like the HUD-backed loans, there are restrictions on the amount you can borrow and what kind of improvements can be made with the money. For more information on CalVet loans, head to for details and restrictions.

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