4 Steps to Getting a Home Improvement Loan
Tired of those builder-grade cabinets? Laminate counters looking a little sad? Are you about to take a sledgehammer to those tiny drawers that don’t do anything but take up space? Most of us love the homes we’re in, but we think there’s a feature or two that could be better.
A little bit spent on a home improvement project can pay off big dividends when it comes to how you feel about your home. But, if you’ve never had to borrow money to improve your home before, you’re probably not even sure where to begin.
“How do I get a home improvement loan?,” you wonder.
Americans will spend around $485 billion on home improvement projects in 2024. Many of those will be self-funded, but the larger ones will likely be at least partially financed by loans. While the general mechanics of how home improvement loans work is pretty consistent across lenders, each will have its own application process, different lending requirements, and different documentation to support your loan.
Acorn Finance makes it easy to apply. With a single application, you can put your information in front of about a dozen lenders who want to do business. It doesn’t take long to figure out how much you qualify for and what you can do with your home improvement loan.
We’ve outlined the four steps to get a home improvement loan below.
1. Determine your financial needs
Before you apply for a loan, first find out how much you’ll need. Make a list of the projects you’d like to take on and assess which are the highest priority. The average cost of a major kitchen renovation was just under $80,000 in 2023. Smaller kitchen projects like new cabinets run anywhere from $2,000 to around $11,000, depending on the scope of the job. Most people will need to make a few compromises between what they want to change in their homes, what they can afford, and what they want to spend every month paying for a home improvement.
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$5,000-100,000
Loan Amount
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6.99-25.49%
APR
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2–12 years
Terms
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660
Minimum Credit Score
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Disclaimer
*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.
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.
Get quotes from local contractors. If you are into doing things yourself, you may want to price out supplies and equipment and figure out how much time it will take. While you can save money doing things yourself, you may also find that the extra time you spend isn’t worth the money you save. It all comes down to a balance between your time, your resources, and the expected costs.
2. Assess your financial situation and get prequalified
Small jobs like new paint throughout the house can probably be funded with what’s in your savings account. But, if you are looking at a bigger home improvement, chances are you may need some outside funding. And, even if you have the funds on hand, you may decide that financing a project works better for you than emptying your savings account all at once.
According to Forbes, more than half who took on a home improvement project last year used some kind of loan or financing. A home improvement loan can allow you to take on larger projects, buy better quality supplies, and pay off a project over time instead of all at once.
Whether you will borrow money or fund the entire project yourself is only the first question, though. If you need to borrow money, consider what will be involved in repaying it.
“Determine your monthly affordability cost, what you can afford each month,” says Corey Sayers, VP of Experience at Acorn Finance. Sayers explains that you should think about how many months you’ll be paying and what room there is in your budget for another monthly commitment.
According to the 2022 U.S. Houzz and Home Study, homeowners’ median spending on home improvement projects jumped 20% between 2020 and 2021. The increase was associated with both increased building costs and more homeowners choosing home improvements over moving to a bigger place.
Before formally applying for a loan, you should get prequalified. Prequalification does not impact your credit score and gives you a picture of how much funding you can expect.
Sayers tells us that, at Acorn Finance, that process takes under two minutes. “It just looks at very high-level information about your living situation and financial situation,” he says. “So, for example, we’re going to ask you for your name, your address, your email, your phone number, what your mortgage is, and your income.” As long as the information you provide is accurate, banks can use it to determine whether they wish to make you an offer and what sorts of terms they can extend.
3. Research your options and compare the pros and cons
Most people will be able to choose between several funding options. Common choices include credit cards, home equity loans, home improvement loans, and loans handled by a contractor.
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.
Make sure you compare each of these side by side when determining what is best. For instance, with a credit card, you’ll need to check your credit limit and figure out how long it’ll take you to pay off the debt. A home equity loan is another option, but it will require putting up your home as collateral. A personal home improvement loan is secured by your personal credit history and your reported income. How much you’ll pay in interest will depend on your personal circumstances.
When comparing each funding option, consider not just the ease of getting financing, but how much it will cost you and how long you will be paying it.
“Say it costs $10,000 to get a new heater and air conditioner,” says Sayers. “There’s a couple questions that come to mind first,” before you can make a decision. “The number one thing the customer should ask is, ‘What terms and APR are you offering?’ Because that will determine their monthly payment.” The term is the length of the loan, while the APR––annual percentage rate––impacts the cost.
4. Apply for home improvement financing
Once you’ve gone through all the previous steps, you are now in a place to take that definitive step and apply for a loan.
The application process will depend on where you go for funding. If you opt for a credit card, it’s as simple as giving your card number to your contractor. The more painful part comes when you are paying it back, as credit card APRs hover around 25%.
Home improvement loans typically offer lower interest rates, with APRs as low as 6.99%, depending on your credit history.
When you apply for a home improvement loan through Acorn Finance, they can use the information you’ve already submitted to get offers from their lending partners. Inside the portal, you’ll have access to information in a format that allows you to compare offers side by side.
When making a formal application, make sure you have documentation handy to make the process go more quickly. “If you’ve mistyped information, the bank might have a question or two,” Sayers says.
Before applying, be sure you have the following handy:
- driver’s license
- Social Security number
- proof of income (like a paystub)
These can be used to verify your information and help the lender decide. In general, approval takes anywhere from a few minutes to a few days.
How your financial situation impacts your home improvement loan
Home improvement loans aren’t a one-size-fits-all solution. Everyone’s needs and circumstances are different, which means the funds you need and the loan you’re likely to be approved for will be different, too. For instance, someone with a high credit score and a long credit history will get more offers with lower interest rates than someone who is just starting out.
What about a person with a low credit score? Sayers assures us that there are lenders for most types of credit situations that will adjust their offers based on the customer’s circumstances. Someone with a lower credit score, for instance, can still qualify for a loan. However, they are likely to have a higher APR and higher monthly payments to account for the credit risk.
How Acorn Finance can help
Making the right decision when it comes to a home improvement loan means being thorough. Be sure you understand your credit history and how it impacts the loan offers you’ll receive. Have a strong idea of your monthly budget and how much you are willing to spend each month on a home improvement project. And, be sure to vet all offers thoroughly so you understand not just what your payment is every month, but how much you will spend over the life of a loan.
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.
Acorn Finance partners with a dozen lenders, so it is easier for you to get multiple offers that you can compare. When you apply, you just need to enter a bit of basic information in one place, rather than reaching out to multiple banks and filling out a brand new application at every one.
Home improvement projects can be stressful, but getting funding for them doesn’t have to be. Get pre-approved on Acorn Finance today so you can stop worrying about how you’ll pay for the project and start dreaming of making your house a home you love.
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