As the days become shorter and colder, we tend to spend more time keeping warm in our homes. With the extra time at home, you may notice areas around the house that could use a renovation, however, you do not have the cash available to make the upgrades. In order to get your project off the ground, you can seek a home improvement loan for which there are several financing options for you to look at. If you are considering taking out a loan you should speak with a loan officer or financial advisor who will help you better understand all of the terms of each type of loan listed below.

Home Equity Line of Credit
A home equity line of credit also known as a HELOC is a common type of financing used for home improvement and the amount you are eligible to borrow is based on the amount of equity you have in your home. Your home equity is the difference between the value of your home and how much you currently owe in financing. By taking out a HELOC, you are creating a second mortgage on your home and using your home as collateral should you not be able to repay. This type of loan does come with a great risk since you can be foreclosed on if you do not repay within the terms of your agreement. It is also important to note that this type of loan often has a variable rate, which could leave you exposed to a high-interest rate on the money you borrow.

Home Equity Loans
Very similar to the home equity line of credit, a home equity loan is a fixed-rate alternative in which you take a second mortgage on your home. This type of loan comes in a lump sum; therefore, it is important for you to understand exactly how much cash you will need to complete the project. Another key differentiator between a home equity line of credit and a home equity loan is that you can pay both the loan principal and interest from the start helping you to build back your home equity quicker.

Personal Loans
One of the most common types of loans for home improvement projects is a personal loan. This type of loan also tends to be one of the fastest ways to get financing for your next home improvement project When you get a personal loan, unlike a HELOC, lenders do not account for your home equity in the equation but focus on standard loan indicators such as your credit history and income to determine eligibility. For owners who do not have much equity in their homes, this may be a good option to look into further. While you are not putting your home ownership at risk by using a personal loan instead of a HELOC or home equity loan, you should keep in mind that you will take a hit to your credit score if do not repay your loan, which will affect your future purchasing power. With that said this type of loan may be more manageable since many lenders will approve a fixed-rate loan for your project.

Cash-Out Refinance
Another type of financing available for home improvement loans is to do a cash-out refinance on your property’s mortgage. For this type of loan, you are adjusting your existing mortgage and drawing from your current equity in your home. Again, if Just purchased your home and have very little equity invested, this may not be the best option for you. This type of financing became more popular as mortgage rates fell during the COVID-19 pandemic, allowing homeowners to refinance at lower rates and cash out a portion of their ownership.

Government Loans
Lastly, the Department of Housing and Urban Development offers loans for housing renovation projects as well to help you get your project up and running. While many of these loans come with different restrictions such as how soon you can sell your property, they offer several programs to help you upgrade your home at a low cost. It is important for homeowners interested in government loans