How much can you borrow with a home improvement loan?
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A home improvement loan can be used to fund renovations and projects on one’s home or property. A complete kitchen remodel or new flooring throughout your house can be a substantial financial undertaking, no matter how overdue the project may be. Luckily, there are several types of home improvement loans available. The borrowing terms and limits will vary depending on which loan product you choose.
How much home improvement loan can you get?
It may be hard to ballpark what a large project will cost. Nonetheless, you’ll want to be confident that you can borrow the full amount needed– a half-completed house project can be difficult — and frustrating — to live with.
The maximum amount of money you can get will depend on what kind of home improvement loan you apply for.
- Home equity loans and home equity lines of credit (HELOCs) are typically based on your home’s value, meaning you can borrow up to a certain percentage of the equity you’ve built in the property.
- Personal loans are usually unsecured and can sometimes be used for home renovations. These borrowing limits are based on your personal credit.
- An FHA 203(k) loan, also known as a mortgage rehab loan, allows you to borrow for both the home’s mortgage and renovations in one loan.
As a rule of thumb, it is unlikely you will be able to borrow more than 80 percent to 90 percent of your property’s value to finance renovation costs. Personal loans usually have an even lower threshold, often up to $100,000 at the very most.
Common home improvement loan amounts
Home improvement loans typically range from $1,000 for smaller projects all the way up to $100,000 for large-scale undertakings. Though you may need excellent credit or a co-signer to qualify for larger loans and the lowest rates, keep in mind that secured loans dependent on your home’s value — like a home equity loan — can range even higher.
While some projects may have a reasonably fixed cost, like a roof or HVAC replacement, other renovations may run the gamut depending on your budget and taste.
What influences the amount you can borrow?
The amount you can borrow will depend on the type of loan you are applying for — government loans often have more stringent requirements than those from private lenders. Most often the amount you can borrow is determined by:
- The loan type.
- Your home’s current value.
- Your location.
- Your personal finances.
When considering your personal finances, a number of key factors will be taken into account by lenders. Two of the most important of these are your debt-to-income or DTI ratio and credit score.
A home improvement loan may not be the best option
A home improvement loan may or may not be the best option for your specific circumstances. If mortgage interest rates have dropped since you originally borrowed for your home, a cash-out refinance may offer lower rates and more favorable terms than applying for a separate loan to fund your renovation project.
Depending on the urgency of your home improvement project, you may also consider saving toward renovation costs rather than borrowing to cover them. If your project is largely cosmetic — updating your “period” bathroom to rid yourself of pink tile, for example — and does not pose any immediate structural or mechanical problems, you may benefit from stricter budgeting and saving annual bonuses and tax returns toward the expense. Like all borrowing, home improvement loans involve fees and interest — remember, the money is borrowed at a cost.
Be careful how much you borrow
As with any credit, be mindful of how much you are borrowing with a home improvement loan. When you consider a renovation or project, use a loan calculator to estimate what your monthly payments might look like. Not only do you want to avoid borrowing more than your property is (or will be) worth, but you want to ensure your monthly payments are manageable.
As mentioned previously, having a project budget in mind is important for estimating how much you’ll need to borrow. A project budget will also help you to plan for the complete cost of your renovation, rather than getting started and running out of money partway through.