Personal Loan for Home Renovation

A personal loan for home renovation projects could help you make the changes you want to your property, especially if you qualify for a large enough amount. Borrowing several thousand dollars is a big decision. Knowledge is power, so you should have a thorough understanding of what’s involved before agreeing to anything. 

If you are looking for help with a personal loan, RenoFi offers personal loans through lending partners to help you find lenders for your property. Typical personal loan amounts can be up to 100k on 20 year terms, but will not use your after renovation value.

Personal Loans for Renovations

You can use personal loans to fund home renovations. Many homeowners choose this route to get the projects they want and/or need done without having to take money out of their savings or emergency funds. Homeowners use personal loans for projects like kitchen remodels, adding a bathroom, or making necessary repairs on the residence. 

Personal loans can certainly be a convenient option for financing smaller home renovation projects you might have on your list, but there are a few reasons why they might not be the best choice for any major renovation projects you have on the horizon. 

• Costly Borrowing: Since personal loans often have higher interest rates than home equity loans or lines of credit, they can actually increase the overall costs of borrowing, especially if you need a larger lump sum for major projects.
• Limited Funding: You may come across much lower maximum limits, so if you need substantial funding, a personal loan might not be the capital you need.
• Higher Monthly Payments: The higher payments can strain your budget, especially if you are already managing other expenses.
• Less Financial Discipline: A personal loan makes it easier to borrow money with a less strict budgeting process. This can lead to overspending. 
• Limited Tax Benefits: Home equity loans can be tax deductible when used for home improvements. Personal loan interest, however, is generally not tax deductible. 
• Quick Decision Making: Since it’s often easier to obtain a personal loan, this can ultimately lead to hasty decisions on the part of the homeowner. This can result in choosing the wrong loan product or borrowing more money than is actually necessary. 

A Personal Loan vs Home Improvement Loan

As you narrow down your loan options, you might be wondering what difference a personal loan versus a home improvement loan can make. 

Key Features of a Personal Loan

A personal loan doesn’t require any home equity to qualify, and the funds can be used for any purpose, not just home improvements or renovations. There is also a much faster approval process, which gets the funds in your hands sooner than other loan types.

• Unsecured Debt: There is no collateral for the loan and no risk to your home if you default.
• Loan Amounts: The loan amounts usually range between $1,000 and $50,000 so it is ideal for smaller renovation projects and expenses.
• Repayment Terms: These are usually between one and seven years and often come with fixed monthly payments.
• Interest Rates: Typically, the rates are higher for these loans because of the lack of collateral. However, rates do vary based on creditworthiness and market conditions.

Key Features of a Home Improvement Loan

These loans are designed for home renovation financing. They are often secured, but there are some unsecured options available. 

• Secured or Unsecured: Some are secured by your property, like a home equity loan or HELOC.
• Loan Amounts: This varies based on the loan type you choose. However, secured loans often offer larger amounts.
• Repayment Terms: Some secured loan options have longer repayment periods (between 10 and 30 years), while unsecured loans often have shorter repayment periods of 1 to 7 years. 
• Interest Rates: A secured loan generally has lower interest rates compared to unsecured. 

Personal Loan vs Home Equity Loan

A home equity loan and a personal loan are different loan options. A personal loan is unsecured, while a home equity loan is secured. 

With a home equity loan, the money comes directly from the equity of your home, whereas a loan doesn’t. You can also expect higher interest rates and a shorter repayment period with a personal loan compared to a home equity loan. 

10 Tips for Finding the Best Personal Loan

To find the best personal loan for your home renovations, you want to take the time to carefully weigh your options. Here are some tips on how to do this:

1. Start By Assessing Your Needs: Determine how much money you need for your renovation projects and then create a detailed budget. 
2. Check Your Credit Reports: Next, review your credit reports and scores, as these will factor into the lender’s decision. For the best rates, aim for a credit score of 700 or higher.
3. Shop Around for Different Lenders: Always shop around and compare lenders from traditional banks, credit unions, and online lenders. You want to find a lender that specializes in personal loans and one that can offer more competitive rates. 
4. Compare Interest Rates: You should choose the lowest interest rate you can find. Even a small difference in the rate can impact the overall cost of your loan.
5. Review All the Loan Terms: Look at the repayment terms, the length of the loan, and the monthly payment amount. Make sure all the terms align with your current financial situation and what you are comfortable paying.
6. Look at the Fees and Costs: Ask about origination fees, closing costs, and prepayment penalties. These can all add to the total cost of the loan.
7. Flexible Repayment Options: You want a lender that offers more flexible repayment terms. For example, do they give you the option to make extra payments without a penalty? 
8. Read Reviews: Ratings and reviews are also helpful. Find a lender with a positive reputation.
9. Loan Prequalification: Many lenders offer a prequalification process. This lets you see potential rates and terms without affecting your credit and helps you narrow down your options. 
10. Consult a Financial Advisor: If you are unsure which loan option would be best, consider seeking advice from a financial advisor who can help you make an informed decision. 

RenoFi for Home Renovations

If you are looking for help with a personal loan, RenoFi offers personal loans through lending partners to help you find lenders for your property. Typical loan amounts can be up to 100k on 20 year terms, but will not use your after renovation value.

Let’s use a couple of simple examples to show how RenoFi can be used to increase your borrowing power if you are looking for secured loans. Instead of only using the equity you have in your house, RenoFi allows you to use the After Renovation Value (ARV) of your home as a lump sum at a fixed interest rate.

Imagine you want to spend $150,000 to renovate your new home and increase the value of your home by $150,000.

Scenario 1 (New Home Purchase): 

• Home price: $600,000
• Downpayment (20%): $120,000
• Current Mortgage Amount: $480,000

Example Home Equity Loan Amount: 

• $600,000 * 80% = $480,000 (80% of Total Home Value)
• $480,000 - $480,000 (Current Mortgage Balance) = $0 (Home Equity Loan Amount)

Example RenoFi Home Equity Loan Amount:

• Assuming that your renovation project will add $150,000 to your home value

• After Renovation Value of Your Home: $750,000

• RenoFi Loan Amount: 

  • $750,000 * 90% = $675,000 (90% of Total Home Value)
  • $675,000 - $480,000 = $195,000 (RenoFi Home Equity Loan Amount)

Using a RenoFi Home Equity Loan you have increased your loan amount from $0 to $195,000. Not only are you now able to borrow the $150,000 you wanted to renovate your home, but you can now borrow up to $195,000 because the RenoFi loan is written against your ARV (After Renovation Value).

Without RenoFi loans, you would not have been able to borrow the $150,000 needed to add the renovations that would increase the value of your home by $150,000. Now, with RenoFi loans, you are now able to get the loan you need to add the renovations you want to your home.

Scenario 2 (Recent Home Purchase): Assuming that you have now paid 10% of your mortgage:

• Home price: $600,000
• Current Mortgage Amount: $420,000

Example Home Equity Loan Amount: 

• Example Home Equity Loan % of Home Price: 80%

• Example Home Equity Loan Amount: 

  • $600,000 * 80% = $480,000 (80% of Total Home Value)
  • $480,000 - $420,000 (Current Mortgage Balance) = $60,000 (Home Equity Loan Amount)

Example RenoFi Home Equity Loan Amount:

• Assuming that your renovation project will add $150,000 to your home value

• After Renovation Value of Your Home: $750,000

• RenoFi Loan Amount: 

  • $750,000 * 90% = $675,000 (90% of Total Home Value)
  • $675,000 - $420,000 = $255,000 (RenoFi Home Equity Loan Amount)

Using a RenoFi Home Equity Loan you have increased your loan amount from $60,000 to $255,000 (4.25x more). Not only are you now able to borrow the $150,000 you wanted to renovate your home, but you can now borrow up to $255,000 because the RenoFi loan is written against your ARV (After Renovation Value). 

Here’s a summary of the difference between traditional and RenoFi home loans in table form: 

In addition to letting you borrow more money for your home renovations, RenoFi loans also offer:

• No draw periods
• No inspections
• No need to give up your original loan
• Higher borrowing limits

RenoFi loans are funded on the day the loan is closed and that is it. Take out the $195k and you get $195k in your bank and you have 20 years to pay off in equal monthly payments with interest and principal, just like a standard mortgage.

Conclusion

You don’t have to wait to start the process of getting a personal loan for the home renovations you’ve been dreaming of doing. There are many options available to you. 

Choosing the right home renovation loan can make or break your project. While traditional loans like HELOCs, personal, and FHA 203(k) loans have their place, they often come with limitations that can restrict your renovation plans. But RenoFi loans give homeowners a unique and flexible alternative. 

By leveraging your home’s after-renovation value, RenoFi allows you to borrow more without the need to refinance your existing mortgage or deal with complex draw schedules and inspections. Therefore, if you are a homeowner looking to maximize your renovation potential, RenoFi loans are the best choice.

Unlike traditional loans, which are based on your current home value or require you to refinance, RenoFi loans are based on the after-renovation value of your home. This allows you to borrow, on average, 11x more, get a low monthly payment, and keep your low rate on your first mortgage.

Explore your RenoFi loan options here.