How do home improvement loans work?

A home improvement loan, or home renovation loan, allows you to buy or refinance a home in almost any condition, make improvements right away and pay over time. You don’t have to buy a home and then save up to make renovations. A renovation loan simplifies the home finance process and reduces added stress with one application and one mortgage payment. Even better, you’ll spread out home improvement costs by paying for them over the life of your loan instead of all at once. In some cases, there’s no limit to the types of renovations you can undertake.

What is a home improvement loan?

When you find your ideal home, chances are you still have a long list of home improvements to tackle. With a renovation loan, there’s no need to wait until you have the cash on hand to get started. Make immediate improvements at a potentially lower interest rate than many credit cards or unsecured personal loans.

  • New homebuyers:

    Purchase a fixer-upper and consolidate the cost to buy with the estimated remodeling costs. You’re able to borrow more money because the loan amount is based on an appraiser’s estimate of what the property will be worth once the improvements are finished.

  • Current homeowners:

    Provide a cost breakdown for the renovation, and we’ll appraise your home as if the renovation work has already been completed, giving us the after-renovated value. We’ll then provide you a new mortgage loan that includes the renovation funds for your project.

What types of remodel projects qualify?

Some of the types of remodel projects that qualify for a renovation loan include:

  • Remodeling kitchen and bathrooms
  • Upgrading electrical, plumbing, heating and air conditioning
  • Installing new flooring, windows, doors, cabinets and appliances
  • Repairing cracked slabs or make structural improvements

A renovation loan can also finance the construction of a home addition or an accessory dwelling unit (ADU). ADUs are one of the best home improvement projects to increase your home’s worth. “When you start adding square footage, you start adding real value to your home. In some markets, the cost for adding square footage is half the price of a home’s per square footage sale price,” explains Danny Fitzpatrick, manager of Guild’s California renovation branch.

Getting a home improvement loan

If you’re researching getting a home improvement loan, we recommend taking these three loan financing options under consideration.

  • Conventional:

    This loan offers the most flexibility in terms of which renovations are possible, including luxury home improvements.

  • FHA 203(k):

    This option is designed for smaller, quick projects, cosmetic or minor repairs like new flooring or appliance upgrades.

  • FHA 203(k) limited:

    This option is designed for smaller, quick projects, cosmetic or minor repairs like new flooring or appliance upgrades.

There are unique eligibility requirements for each option. Find out how you can qualify as well as the repair guidelines.

Applying for a home improvement loan

Ready to get started? If you’re in the market for a fixer-upper, our experienced loan officers will help you get pre-approved, so you know how much you can spend and are prepared to make an offer on the right home. They’ll also assist in your search for a licensed general contractor.

At your initial loan consultation, you’ll provide:

  1. Information about your income, assets, liabilities, and any owned real estate
  2. Written consent(s) to pull a copy of your credit report(s)

Learn more about the process from pre-approval to getting the funds to do the work in our helpful guide to home renovation loans.

Our experienced renovation loan specialists are here every step of the way. From helping you understand your loan options to finalizing the cost breakdown for your desired renovations. Let’s talk.

The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply.

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About the Author: Guild Mortgage

Founded in 1960 when the modern U.S. mortgage industry was just forming, Guild Mortgage Company is a nationally recognized independent mortgage lender providing residential mortgage products and local in-house origination and servicing. Guild’s collaborative culture and commitment to diversity and inclusion enable it to deliver a personalized experience for each customer. With more than 4,000 employees and over 250 retail branches, Guild has relationships with credit unions, community banks, and other financial institutions and services loans in 49 states and the District of Columbia. Guild’s highly trained loan professionals are experienced in government-sponsored programs such as FHA, VA, USDA, down payment assistance programs and other specialized loan programs. Guild Mortgage Company is a wholly owned subsidiary of Guild Holdings Company, whose shares of Class A common stock trade on the New York Stock Exchange under the symbol GHLD.