Types of Home Renovation Loans

Types of Home Renovation Loans

If you are thinking about getting some work done on the house, spending money out of your pocket might not be a wise idea, especially with all the other bills that need to be paid. Whether you are planning to sell your home for a profit or simply want to spruce it up, the best way to go about it is to get a loan.

The question that now remains is, “Which loan should you choose?”

Well, the answer to this is not easy because there are so many loan types available online by lenders like Jacaranda Finance that it can be a little difficult to make a decision. The good news is that we are about to explain them all so you can pick one according to your needs.

Let’s begin:

Bad Credit Loan

As the name says, a bad credit loan for home renovation offers you the benefit of borrowing money even with a low score. You can borrow an amount, anywhere between $5,000 and $15,000. Keep in mind that you can use this loan for minor repairs and not major repairs such as fixing the foundation. The most common repairs in the former category include:

  • Electrical issues
  • Roof repair
  • Repairing the water heater
  • Water Damage
  • Repairing pipelines
  • Septic system repair
  • HVAC repairs
  • Mould removal
  • Termite damage


  • Easy and fast online approval
  • Bad credit score acceptable
  • Unsecured loan with 1 year payback time


  • High interest rate
  • An amount higher than $2,000 requires collateral

Personal Loan

The cap on a personal loan depends on the condition of your house, credit history and employment. One of the best things about a personal loan is that it’s unsecured, which means that an online lender won’t ask for your house as collateral. You can either go for a fixed rate personal loan or an adjustable one. 

The only catch is that compared to other home renovation loan options, a personal loan has a high interest rate. Moreover, your credit score must be in the “Good” range to get favourable repayment terms. 


  • Funds available quickly
  • Fast application process
  • Perfect for emergency repairs
  • No lien required


  • Lower borrowing limits
  • Loan rates based on creditworthiness
  • Prepayment penalties
  • Shorter repayment terms
  • Expensive late fees

FHA 203(k) Rehab Loan

This loan allows house buyers and homeowners to get a mortgage as well as a loan for home improvement in one go. The requirements are a bit stringent, but this loan has a low interest rate. 

The best thing about this loan is that if you are buying a fixer-upper, you can attach your home improvement loan application alongside your mortgage application, and you will get the entire amount in one go. Since this loan is provided by the government, you get to enjoy benefits, such as a low credit score acceptability and low down payment.


  • Available for all types of buyers
  • Low down payment (3.5%)
  • Low interest rates
  • 620 credit score is acceptable


  • Only for fixer-uppers and older homes
  • The renovations costs must exceed $5,000
  • Upfront monthly mortgage insurance
  • Loans can only be used for a select number of home improvement projects

Home Equity Loan 

This loan allows you to borrow money against the equity you have in your home. The equity in this case is calculated based on the value of your home, which is subtracted by the outstanding balance that is due on the existing mortgage loan. 

Keep in mind that the monthly mortgage payments you will make will not include this loan. You will be making two monthly payments.

A home equity loan makes sense when you have enough equity in your house, and the renovation you are doing is a one-time project. Since the money you borrow is against your house, your house will be possessed if you fail to make the payments. 

If you are borrowing a large amount, you will have to pay the closing costs. So, make sure that the repairs are worth it. And oh, did we forget to mention ― a HEL loan comes with a low interest rate.


  • Great for bigger remodelling projects 
  • Fixed interest rate
  • Lengthier loan terms from 5 to 30 years
  • 100% of your home’s equity can be used to borrow money


  • Almost doubles your monthly payments
  • Most lenders, banks and credit unions charge the borrower origination fees
  • A lump sum amount is given so you have to carefully decide on which projects to spend the money


The term pretty much tells what this loan is: Getting another mortgage. You can either re-mortgage your house with the same lender or switch to another. The way this loan works is pretty simple. For example, suppose your current mortgage is $200,000 and you have paid $50,000, which means the remaining amount is $150,000. If you re-mortgage the house and borrow $170,000, you will have $20,000 more for the renovation. 


  • Low interest rate
  • You can switch lenders if your current one is not offering you good rates
  • The mortgages can be consolidated


  • The more you will stretch the mortgage, the higher the overall cost will go
  • Home used as collateral
  • High charging fee

HELOC (Home Equity Line Of Credit) 

A HELOC loan is almost like a HEL loan. The only difference is that the former works like a credit card. Based on your financial information, you are given a pre-approved limit. Once you have used it and paid back the amount, you can reuse it. 

HELOC loan interest rates are adjustable. The best thing about this loan is that if your borrow half the amount from your pre-approved limit, the interest rate will only apply to that amount and not the entire line.


  • Revolving balance 
  • Payment varies based on the amount borrowed
  • Minimal to no closing costs


  • Since the loan rates are adjustable, your monthly payments might rise by a large amount 
  • Credit unions or banks can change the repayment terms
  • Rates are higher compared to home equity loans

Final Word

So, which option is the best one?

If you ask us, a bad credit loan, HEL loan and HELOC loan are the three best options that can help you do fast home renovations. You can also use your credit card. However, since it has a high interest rate than all the loans mentioned above, you are better off without it.


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