A home improvement loan can be a terrific way to spruce up your home, but it might feel challenging to find one that doesn’t require home equity. We searched for solid home improvement loans you can take out with little to no equity.
The rates on these loans might be higher than those on secured home improvement loans, such as home equity loans and home equity lines of credit (your home acts as collateral on these loans, which is why they’re considered secured).
The loans we’ll discuss below are options if you moved into your home recently or your home has depreciated in value since you bought it. Consider these home improvement loans if you haven’t built equity in your home or don’t want to risk losing your home if you can’t repay your loan.
Home equity is the value of your interest in your home. You can calculate your equity by subtracting the remaining balance on your mortgage from the market value of the home.
For instance, if your home is worth $250,000 and you have a mortgage with a balance of $180,000, your home equity is $70,000.
Building equity in your home is important; you can use home equity to your advantage in several ways—for example, as collateral for a home equity loan or home equity line of credit (HELOC).
These are common ways to pay for home improvements, and equity can make it easier to make the upgrades your home needs. Using your home as collateral can allow you to qualify for lower rates than you would without equity.
Lender requirements vary, but most require you to have at least 15% home equity in your home. In addition, many will allow you to borrow up to 85% of your home’s value.
As a homeowner, you may find yourself wanting to remodel or make upgrades to your home but not having enough equity built up yet to qualify for a home equity loan Not to worry – there are several options for financing home renovations even if you don’t have equity. In this article, I’ll explain what home remodeling loans with no equity are, their pros and cons, and provide tips on how to qualify and choose the best loan for your situation
What are home remodeling loans with no equity?
Home remodeling loans with no equity allow you to borrow money to make home improvements without having equity built up in your home. These types of loans are designed for homeowners who have little to no equity and need to finance renovations or repairs to their home.
With a traditional home equity loan or home equity line of credit (HELOC), you need to have enough equity in your home – typically at least 15-20% – to qualify. But no-equity home improvement loans remove this requirement so you can get financing even if you only recently purchased the home.
No-equity home remodeling loans fall into two main categories:
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Secured loans – These require collateral, usually in the form of placing a second lien or mortgage on your home. Even though your equity is low or non-existent the lender still places a lien on the home.
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Unsecured loans – These do not require collateral and are not tied specifically to your home However, they tend to have higher interest rates
Below I’ll go into more detail on the different types of no-equity home remodeling loan options.
Secured no-equity home remodeling loans
Here are some of the most common types of secured loans for financing home renovations when you have little to no equity:
FHA Title I Home Improvement Loan
- Government-backed loan from the Federal Housing Administration (FHA)
- Can borrow up to $25,000
- Fixed low interest rates
- Loan terms up to 20 years
- Limited to renovations that improve safety and livability
FHA 203(k) Loan
- Government-backed loan combining purchase/refinance with home renovation loan
- Can finance up to 100% of purchase price plus renovation costs
- Fixed low interest rates
- Renovations can be more extensive than Title I loan
VA Renovation Loan
- For veterans/active military only
- Finance 100% of purchase price plus renovations
- Zero down payment required
- Low fixed interest rates
Conventional Renovation Loans
- Offered by private lenders like banks and credit unions
- Finance up to 95% of as-completed home value
- Lower interest rates than personal loan
Pros of secured loans:
- Lower interest rates
- Longer repayment terms
Cons:
- Second lien on home
- Limited renovation scope
- Stricter qualifications
Unsecured home remodeling loans
If you don’t want to put your home up as collateral, unsecured personal loans are an alternative for financing home renovations without equity.
- Offered by online lenders, banks, credit unions
- Fixed interest rates usually higher than secured loans
- Shorter repayment terms of 2-7 years
- Loan amounts up to $100,000
Pros of unsecured loans:
- No home collateral required
- Quick funding
- Fewer application requirements
Cons:
- Higher interest rates
- Shorter repayment terms
- No tax deduction on interest
Tips for qualifying for no-equity home remodeling loans
While home remodeling loans with no equity make it possible to finance renovations without tapping equity, you still need to meet certain requirements to get approved. Here are some tips to improve your chances:
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Have good credit – Most lenders require a minimum credit score in the mid 600s. The higher your score, the better.
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Lower your debt-to-income ratio – Lenders look at your existing monthly debts in relation to income. Keep credit card balances low.
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Have steady income – Provide pay stubs and tax returns showing consistent income.
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Use loan proceeds wisely – Stick to renovations that increase property value. Luxury upgrades may be denied.
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Research lenders – Compare loan options from banks, credit unions, and online lenders. Pre-qualify to find the best rates/terms.
How to choose the best no-equity home improvement loan
If you decide a home remodeling loan with no equity is right for your situation, here are some factors to consider when choosing the best loan:
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Interest rate – Lower rates save you money over the life of the loan. Compare options.
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Fees – Look for low or no origination/application fees.
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Loan term – Longer terms spread repayment over time but cost more in interest.
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Loan amount – Make sure the loan covers your full renovation budget.
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Collateral requirements – Assess whether you’re comfortable using your home as collateral.
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Qualifications – Opt for a loan that matches your credit history and income level.
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Repayment schedule – Some loans offer flexible repayment options.
The bottom line on no-equity home remodeling loans
As you can see, just because you lack equity doesn’t mean you can’t finance needed renovations or repairs for your home. No-equity home improvement loans make this possible through secured loans placing a lien on your home or unsecured personal loans with higher interest rates.
If you use loan proceeds carefully for renovations that boost your home’s value and shop around for the best loan terms, a no-equity home remodeling loan can be an affordable financing option. Just be sure to only borrow what you can reasonably repay on your current income.
Upstart – Best for thin credit
Editorial rating: 4.8 out of 5
- 99% of funds sent 1 business day after signing
- Check your rate with no impact on your credit score
- Uses more than just your credit score to determine rates
Upstart is our top pick for borrowers with little to no credit history. Its minimum credit score is 300—the lowest possible. It uses your income, credit score, and other information to determine your loan amount and APR. You can prequalify with no immediate impact on your credit.
Another reason we like Upstart personal loans is the APR starts as low as %. According to Upstart, its rates are 43% lower than credit-only models. However, it also charges origination fees, which can go as high as 10%. Overall, it’s a solid option for those with lower credit scores who want an affordable personal loan.
- Rates: Starting at % APR
- Loan amounts: $1,000 – $50,000
- Repayment terms: 36, 60, or 84 months
- Funding time: As soon as the next day
- Soft credit check? Yes
Upgrade – Best for fair credit
Editorial rating: 4.9 out of 5
- Funding as soon as the next day
- Credit Health tool lets you check your credit score and history
- Multiple payment options available
Upgrade is our top pick for borrowers with fair credit because it lets you prequalify, next-day funding is available, and you can choose from several payment options. Upgrade doesn’t assess fees if you repay your loan early. Loan amounts range from $1,000 to $50,000.
Another reason Upgrade is a solid pick for fair credit is its Credit Health tool. The tool gives you access to your VantageScore® 3.0 as well as a summary of your credit score. It also lets you see how different scenarios might affect your credit score.
- Rates: Starting at APR
- Loan amounts: $1,000 to $50,000
- Repayment terms: 24 – 84 months
- Funding time: As soon as the next day
- Soft credit check? Yes
Home Improvement Financing: What Are My Options?
FAQ
What happens when you have no equity in your home?
What is a no equity loan?
Can you get a HELOC without equity?
Can you get a second mortgage without equity?