How to Get a Home Loan to Renovate

If you’re interested in renovating your home or making long-overdue repairs, getting enough funds can be a challenge. When you don’t have enough money on hand to do the renovations you want, it might help to apply for a home loan to renovate. Understandably, most homeowners don’t have immediate access to large sums of money to pay for costly renovations, which is where home reno loans can provide assistance. Some loans are better options for current homeowners, while others can assist investors looking to purchase a house to fix up and flip.

How Do Home Renovation Loans Work?


Home renovation loans give you access to the necessary funds to fix up your home. Depending on the type of loan you choose, you may need to present proof that you used the funds on the house. The loan process may differ and interest amounts will also vary depending on the loan you pick. You can use these loans for your current home’s renovations, and some loans can also apply to fixer-uppers if you are looking to buy a new property to renovate.

Types of Renovation Loans

There are multiple options available to finance renovations on your home. Here are some of the most popular types of renovation loans:

Personal Loans

Personal loans are unsecured and may be preferable for people who don’t want to use their home as collateral. One downside is that they are typically smaller amounts, usually between $1,000 and $50,000. If you have a large home renovation project planned, a personal loan may not cover all of your renovation costs. Interest rates are usually high with personal loans, making this an expensive option to finance renovations. 

Home Equity Loans

Home equity loans allow you to borrow up to 80% of the equity in your home, so the maximum amount for this type of loan can vary. You can use the funds as needed, and you typically pay lower interest rates compared to personal loans. The downside is that you could find yourself in foreclosure if you default on your payments. Loan amounts will vary based on your home equity, but a typical range might be $10,000 to $500,000. 

Home Equity Line of Credit (HELOC)

Home equity lines of credit also use the equity in your home, except that you don’t receive a lump sum. Instead, you withdraw funds from your revolving line of credit as needed during the allowed “draw period,” which is usually around 10 years. After the draw period ends, you’ll need to repay the amount during the allotted repayment period, which is typically around 20 years.

With a HELOC, the bank might allow you to borrow up to 80% of your home’s value. The upside with HELOCs is that you only use the funds you need, keeping your costs down. However, variable interest rates mean your total borrowing costs can be higher.

Home Equity Investment (HEI)

Point offers a home equity investment that allows you to leverage your home equity to finance renovations. You can get between $35,000 and $350,000 with no monthly payments. With an HEI, Point becomes an investor in your home and shares a portion of your future home appreciation. You retain full control of your home, and the title remains unchanged. There are no restrictions on how you use the money.  

Mortgage Refinance

Another option is to refinance your home through a cash-out refinance, usually borrowing between 80% and 90% of your home’s current value. The cash-out refinance allows you to use your home’s equity to apply for a larger mortgage and take a cash payment to cover your renovation costs. Refinancing typically offers lower interest rates, but the closing costs are higher, and you restart your mortgage term.

Government Loans

Several different government-issued loan options can help you finance a remodeling project, such as the FHA 203(k) loan. You can borrow the amount necessary for fixing up or renovating your home. The FHA 203(k) Iender will transfer your loan into an escrow account so that you can pay contractors from here. If you’re purchasing a home to renovate with an FHA 203(k) loan, you may be able to borrow up to 96.5% of the after improved value of the home. If you are refinancing with an FHA 203(k) loan, the maximum amount is 97.75% of the after improved value. The minimum loan amount for this government loan is usually $5,000. 

Some of these loans are easier to obtain because the Federal Housing Administration backs them. The downside is that you can only use the funds on renovation projects, and these loans almost always prohibit DIY work to the home.

Fees and Costs Associated With Loans to Renovate Your Home


The fees and costs of a home renovation loan will vary depending on the type of loan you choose. Getting a new loan also means adding another payment to your monthly expenditures and adding the cost of the interest that you will have to pay back. 

Personal loans may have origination fees that can range between 1% and 10%, and the interest rates are usually much higher than home equity loans and lines of credit. Home equity loans and home equity lines of credit have lower closing costs and fees, but there may also be an application and appraisal fee.

Potential Pitfalls With Loans to Renovate a House

When it comes to renovation loans, it’s crucial to do your homework and decide which option is right for you. In some cases, your planned renovations may not be worth the projected costs. For example, a bedroom remodel might not add much value to your home. 

Renovations can often run over the projected costs. If you don’t budget correctly, you may not have enough to cover the full renovation. Remember: you have to factor in costs like permits, inspections, engineers, and architects.

If you go with a government-based loan, you may find there are restrictions. For example, your lender may be monitoring the project and collecting all supporting paperwork.

Deciding Which Home Reno Loans Are Right for You

Choosing how to finance renovations can be challenging. An experienced team member at Point can explain all of your options and help you decide which one best suits your financial needs.

Using the equity in your home is a popular option to fund a renovation budget. A home equity investment from Point can be one of your best resources. With an HEI, you can receive cash for your renovations without monthly payments. Point can help you secure the funds you need to enjoy your home for many years to come. Contact one of our knowledgeable team members to learn more.


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