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.
Making upgrades or renovations to your home can greatly improve your quality of life and even increase the value of your property. However, home improvement projects often come with high price tags that may be difficult to afford upfront. If you don’t have enough equity built up in your home yet, you may be wondering how to finance necessary renovations. The good news is that there are options for financing home improvements even if you have little to no home equity.
What is Home Equity and Why Does it Matter?
When you make mortgage payments on a home over time, you slowly build up equity in that property Equity represents your ownership stake in the home. You build equity as you pay down the loan principal and as the property appreciates in value
Lenders want to see that you have skin in the game before they will loan you more money. Typically lenders look for at least 15-20% equity before they will approve a home equity loan or line of credit. If you don’t have sufficient equity you may have trouble qualifying for one of these traditional home improvement financing options.
Low and No Equity Home Improvement Loan Options
If you need to finance home renovations but don’t have enough equity, don’t despair. There are specialized loan programs available that are designed for homeowners like you. Here are some of the main options to consider
FHA Title I Home Improvement Loan
This government-insured loan program through the Federal Housing Administration (FHA) provides financing for home repairs and improvements up to $25,000.
- No minimum credit score requirement
- Low fixed interest rates
- Loan terms up to 20 years
- Funds minor home remodels and repairs
FHA 203(k) Rehab Loan
The FHA 203(k) allows you to roll the costs of purchasing and fixing up a home into a single mortgage.
- Minimum 500 credit score
- Finance up to 100% of purchase + renovation costs
- Complete repairs within 6 months
- Loan converts to standard mortgage after renovations
VA Renovation Loan
If you’re eligible for a VA home loan, you may qualify for a VA renovation loan to buy and improve a home with 100% financing.
- Zero down payment required
- Finance full purchase price + renovations
- Credit score and income requirements apply
- Must use VA approved contractor
Conventional Renovation Loans
Programs like Fannie Mae’s HomeStyle loan allow you to buy and improve a home with as little as 3% down.
- Minimum 620 credit score
- 3% down payment on purchase + renovations
- Complete work within 12 months
- Pay mortgage insurance
Personal Loans
Personal loans provide fast access to cash for renovations without collateral requirements. However, they come with higher interest rates.
- Quick access to funds
- Fixed monthly payments
- Unsecured – no home collateral needed
- Interest rates typically 7-36%
Tips for Getting Approved
While it is possible to get approved for home improvement financing without equity, there are some tips that can help strengthen your application:
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Improve your credit score -Aim for at least a 620 FICO score or higher. Pay down debts, dispute errors on your credit reports.
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Lower your debt-to-income ratio – Lenders will want to see you have enough income left over after debts to afford the new loan payment. Pay down credit cards and other debts.
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Use loan programs that require less equity – FHA and VA loans only need 3.5% down, conventional loans as low as 5% down. Avoid HELOCs/home equity loans requiring 15-20%.
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Provide substantial down payment – Putting 10-20% down shows you have “skin in the game” and may help you qualify and get better rates.
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Use alternative income documentation – If you’re self-employed or a contractor, provide bank statements to document income.
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Add a co-borrower – Adding a co-signer with better credit or income can help with approval.
Which Home Improvements Should I Finance?
When you have limited equity, focus on financing necessary repairs and improvements that make your home more functional and livable. Cosmetic upgrades can wait until you build more equity.
Good uses of funds:
- Structural repairs (roof, foundation)
- Electrical/plumbing upgrades
- HVAC system replacement
- Flooring replacement
- Bathroom/kitchen remodels
- Accessibility improvements
Avoid using financing for luxury upgrades like pools, hot tubs, and outdoor kitchens. You want to choose renovations that will have the highest return on investment.
Alternatives to Finance Home Improvements
If you need to make minor improvements but don’t want to take on debt, consider these options:
- Save up cash in a dedicated home improvement savings account
- Use tax refunds for renovations
- Take advantage of 0% APR credit card offers (if you can pay in full)
- Consider getting a side job for extra renovation cash
- Ask for gift money toward renovations for holidays/birthdays
- Use cash-out refinance proceeds (if you have sufficient equity)
Wrap Up
The bottom line is that lack of home equity doesn’t need to stop you from being able to finance necessary home renovations. While traditional home equity loans and lines of credit require more equity, there are specialized mortgage and consumer loan programs available for homeowners with minimal or no equity. Do your research to find the right loan program and lender for your situation. With careful planning, you can get the home improvements you need to make your house feel like home.
Can you get a home improvement loan without home equity?
Many lenders require you to have at least 15% equity to qualify for a home equity loan or HELOC, but it’s possible to get a home loan even without this requirement. One of the most common ways to do this is with a personal loan.
Personal loans are available from banks, credit unions, and online lenders. One of the main differences between a personal loan and a home equity loan or line of credit is that personal loans are unsecured, meaning you don’t need to use your home equity as collateral.
However, your credit score is a major factor in whether you qualify. If you qualify, your credit score helps determine the rates, terms, and monthly payments the lender will offer. The lack of collateral for personal loans often means higher rates than on home equity loans.
SoFi – Best for good credit
Editorial rating: 5.0 out of 5
- No late fees, prepayment penalties, or origination fees
- Loans funded as soon as the same day
SoFi offers several products, one of which is a home improvement loan with no equity. Loan amounts range from $5,000 to $100,000, and you can use them for any purpose. SoFi says its loans are ideal for projects such as kitchen remodeling, landscaping, and energy efficiency upgrades. It also notes the average size of the personal loans it funded in 2022 was $30,000.
SoFi lets you prequalify for its loans with no fees or impact on your credit history. Loans can be funded as soon as the same day. If you set up autopay, your interest rate will drop by 0.25%.
- Rates: Starting at % APR
- Loan amounts: $5,000 to $100,000
- Repayment terms: 24 – 84 months
- Funding time: As soon as the same day
- Soft credit check? Yes
Home Improvement Financing: What Are My Options?
FAQ
How to finance home addition without equity?
What disqualifies you from getting a home equity loan?
What happens when you have no equity in your home?
Can you get a line of credit without equity?
Can I finance a home improvement project if I don’t have equity?
There are several ways that you can finance an addition to your home or other home improvement project even if you do not have the necessary equity in your home. A home equity loan or line of credit will typically require you to have at least 15-20% equity in your property at the time that you apply for the loan.
Can you get a home improvement loan with no equity?
If you recently purchased your home but need to tackle some repairs, you can get home improvement loans with no equity that’ll allow you to finance up to 100% of the renovation costs.
Are home improvement loans unsecured?
Home improvement loans are unsecured, meaning you don’t risk losing your home. This can happen with home equity loans or HELOCs if you can’t make your payments. It’s generally easier to qualify for home improvement loans with no equity than home equity loans or HELOCs. The latter two usually require at least 15% equity in your home.
Should I get a personal loan for a home improvement project?
I needed a home improvement loan, and with limited equity, a personal loan was my best option. Though personal loans have higher interest rates, approval is much faster than with any type of home equity loan or refinance, and you can potentially borrow enough to cover a home improvement project that’s too big for your credit cards.