Banks That Offer Home Renovation Loans: What You Need to Know
Anyone who has a home eventually starts wondering how to improve it.
The next thing they wonder is how they’ll pay for it.
Whether it’s something as minor as a new front door or as major as a primary suite addition, even the least expensive improvements can cost thousands of dollars.
You have options. Most (if not all) banks offer some kind of financing for home improvement. Meanwhile, a platform like Acorn Finance lets you consider offers from multiple lenders all at once, and select the one that best fits your needs.
We talked to Mike McGinley, VP of Lender Relationships at Acorn Finance, about the pros and cons of using a bank to fund your home improvement. We also spoke with a couple loan advisors from some of the biggest U.S. banks about how their offerings work.
In this article, we’ll review the types of financing you can get for your home improvement projects, and then look at the banks that offer them.
*Your loan terms, including APR, may differ based on loan purpose, amount, term length, and your credit profile. Rate is quoted with AutoPay discount. AutoPay discount is only available when selected prior to loan funding. Rates without AutoPay are 0.50% points higher. To obtain a loan, you must complete an application on LightStream.com which may affect your credit score. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice. Payment example: Monthly payments for a $25,000 loan at 10.19% APR with a term of 12 years would result in 144 monthly payments of $301.52.
Disclaimer
Truist Bank is an Equal Housing Lender. ©️ 2023 Truist Financial Corporation. Truist, LightStream, and the LightStream logo are service marks of Truist Financial Corporation. All other trademarks are the property of their respective owners. Lending services provided by Truist Bank.
Personal loans
When we talk about personal loans, we’re talking about unsecured loans. That means you’re not using your house as collateral.
The downside of an unsecured loan is that your interest rate will be a few percentage points higher than it would be with a secured loan. The benefit is that you aren’t in danger of losing your house if you’re unable to keep up with your payments.
McGinley estimates that, depending on the lenders who are on Acorn Finance at any given time, a personal loan on the platform can be as high as $100,000 with a repayment period of up to 20 years.
Home equity options
There are several financing options that leverage your home equity. If you’ve paid off around 20% of your home’s value, you can borrow against that equity, usually as much as 80-90% of that value.
These financing options are secured with your home, resulting in an interest rate a few percentage points lower than an unsecured personal loan.
There are three typical ways to access this money: home equity loans, home equity lines of credit (HELOCs), and cash-out refinances. All three result in a new mortgage, and all three have minimum credit score requirements of around 620.
Home equity loans
This type of loan arrives in a lump sum. You pay it back monthly as a second mortgage alongside your current one.
Home equity line of credit (HELOC)
Instead of a lump sum, a HELOC is like a revolving line of credit. That means you can borrow as much or as little as you need, up to the maximum amount you’re eligible for.
You can even borrow money, then pay it back, then borrow it again. It’s almost like using your home as a credit card.
At some point, usually after ten years, the line of credit expires and you begin paying back what you still owe as a second mortgage.
Cash-out refinancing
A cash-out refi creates a single, brand-new mortgage. It adds the amount you’re borrowing to the amount you still owe on your home, and you pay this mortgage down with a single monthly payment,
Home improvement loans from major banks
All the major bank chains offer at least one of these loan options. Let’s take a look at some of the biggest banks’ offerings.
Tip
Chase
Chase offers cash-out refinancing.
You don’t have to have a Chase bank account to qualify for the refi, but Steven Clark, Chase’s Home Lending Advisor, mentions an interesting perk: “We have a Relationship Pricing Program for individuals that have funds with a different bank.” You can save on your loan terms if you transfer your money to Chase, “up to a full percent off the interest rate.”
He adds that “there is room to negotiate” things like application fees, origination fees, and interest rates.
Clark also cautions that, while a cash-out refinance is good for home improvements, make sure you secure the loan before beginning work. “What we’re looking to finance is a turn-key, move-in-ready house, meaning no active construction.” He says he’s been approached by do-it-yourselfers who have smashed up their bathroom walls and then approached him for the refi. “We want the appraisal to come beforehand. Because then an appraiser can actually put a value on the place.”
“Maybe put the sledgehammer down for a minute,” Clark suggests.
Bank of America
Bank of America offers home equity loans, HELOCs, and cash-out refinancing.
They have a thorough explainer comparing the two options with some details to consider. For example, they clarify that their HELOC has a variable rate that will fluctuate with the U.S. Prime Rate, while a cash-out refi can be variable or fixed. They also specify that their cash-out refi has closing costs like you’d expect from a mortgage, while a HELOC “usually has no (or relatively small) closing costs.”
Citi
Citi offers personal loans, home equity loans, HELOCs, and cash-out refinancing.
Their personal loans are available to qualifying Citi customers.
They suggest cash-out refinances are a good option for home improvement projects (and not for one-time expenditures like vacations).
US Bank
US Bank offers personal loans, home equity loans, HELOCs, and cash-out refinancing.
Their site walks you through some of the differences, including the suggestion that a home equity loan is “better for one-time expenses” and a HELOC is “better for ongoing access to funds.” Consider what kind of home improvement project (or projects) you’re embarking on to choose the best financing option for you.
Wells Fargo
Wells Fargo offers personal loans and cash-out refinancing.
On their site, they promote personal loans, which range from $3,000 to $100,000 and have no origination fee, as particularly good for home improvement projects.
Ali Abugalal, a Wells Fargo representative specializing in refinancing, confirmed that your current mortgage does not need to be with Wells Fargo to qualify for a cash-out refi (“You can be an external customer from any other lender”), but the new mortgage would be with Wells Fargo.
“As far as other qualifications go,” he says, “it’s going to be based on their debt, their income, employment history, things of that nature.”
He says that a qualified applicant can negotiate certain elements, like the length of the mortgage, but other details like processing fees are pretty standard and non-negotiable.
Home improvement loans from smaller, regional banks
There are thousands of community and regional banks in the United States. Do they have any advantages over the larger, national chains?
McGinley suggests one: “You might have a personal relationship. Your bank may know that you’ve got a deposit account sitting with them that’s got, theoretically, a million dollars in it. They may take that into consideration to give you favorable terms.”
BankBound, a company devoted to nurturing small, local banks, touts deeper customer relationships and knowledge of the local community as advantages over larger, national banks.
Home improvement loans from credit unions
A credit union is a nonprofit, member-centered financial institution. The members are part owners in the credit union, so all of its moves are geared to benefit them.
For example, McGinley says that “credit unions will try to do special programs for their members.”
He mentions one that offered small emergency loans of a few hundred dollars to members with low credit — loans those members may have had a hard time getting at a megabank. This is the type of member advantage people want from a credit union.
This approach may result in lower interest rates and more personal service. You have to be a member to do business with a credit union, but it’s usually pretty easy to qualify for membership (and sometimes you can become a member while you apply for a loan).
There are over 4,000 federally insured credit unions in the U.S., and most of them offer at least one of the loans discussed above.
Home improvement loans from Acorn Finance
What’s the advantage of going to Acorn Finance instead of a bank?
“If you just go to your bank,” McGinley tells us, “they’re going to give you a rate, and it’s hard to determine sometimes whether or not that rate is favorable or unfavorable based on what’s happening in the marketplace. Whereas, since we’ve got a marketplace of lenders at Acorn Finance, you get to compare.”
Even if you have a personal relationship with your bank, and they tailor an offer to you accordingly, “you still won’t know if some other lender could do better,” unless you broaden your search.
Within minutes, a visit to Acorn Finance shows you a selection of high-quality lenders and loan offers you’re already pre-qualified for.
Comparing options on Acorn Finance? See if you prequalify for a personal loan without impacting your credit score. Just answer a few questions to get personalized rate estimates from multiple lenders.
The personal loans you’ll find on Acorn Finance have some advantages over home equity options. “You’re much more likely to get the money quickly with a personal loan,” McGinley says, “because you’re not going through the process of securing it against your property––the amount of paperwork you have to go through, the appraisal process and everything else.”
“Generally, you can get funds from a personal loan in a couple days. Equity loans are going to take a couple weeks at least.”
Credit score help
Your credit score affects your ability to get approved for a loan. McGinley says that Acorn Finance loans are available for credit scores as low as 550, but there will be fewer lenders and less favorable terms at that level.
Important
Josh Shaw, Contractor Account Manager at Acorn Finance, shared some tips for improving your credit score. “Obviously, the main thing is making your payments on time,” he advises. “Make sure you’re not 30 days late, because that’s the point where your score gets hit pretty heavily.”
Lenders are also wary of high balances on your credit cards. “They don’t want to see you maxed out. If you can start to pay off one at a time to where you reduce that overall revolving limit, they look favorably on that.”
He also mentions something called a “secured card.” You put some small amount of your own money (say, $300) on a payment card, and that amount becomes the limit you can spend with that card. You pay back that $300, then you can use it again and again. It’s kind of like a credit card with training wheels, and it can demonstrate some financial responsibility and build or repair your credit score.
The benefits of a personal loan marketplace
Home improvements can be overwhelming — and so can finding your perfect financing options. Acorn Finance can streamline your search by showing you a selection of high-quality lenders and loan offers you’re already pre-qualified for. Select one that fits your needs, and start making your house a dream home.
Comparing options on Acorn Finance? See if you prequalify for a personal loan without impacting your credit score.
Just answer a few questions to get personalized rate estimates from multiple lenders.
acornfinance.com