If you’re a homeowner, there’s a good chance you’re planning home improvements. In fact, a 2018 survey by LightStream found that 45% of respondents expect to spend at least $5,000 on a project and the percentage of people planning to spend $35,000 or more doubled from the earlier year.
Whether you want to build a deck, remodel your kitchen, or upgrade a bathroom, you might need a home improvement loan to make it happen.
Getting a home improvement loan with no equity doesn’t have to be a daunting task, though. Here’s how to do it.
How to get a home improvement loan with no equity
When many people think of borrowing money to make home improvements, they think of home equity loans or lines of credit. The value (or equity) in your home secures the loan, allowing you to potentially fund an expensive project.
However, not everyone has a lot of equity in their home. Recent homeowners might not have had time to pay down the principal on their mortgage. And a drop in home values for long-time homeowners can erase some of their equity.
The good news is it’s possible to get a home improvement loan with no equity. There are two options.
1. Personal loan
“Instead of basing the loan on a home’s value, lenders evaluate personal loan applications based on factors like a person’s credit score, credit history, and creditworthiness,” said Abhinav Anand, the head of consumer lending at Marcus by Goldman Sachs.
2. Title I Property Improvement Loan
If you need to borrow $7,500 or less, it’s possible to get a loan insured by the U.S. Department of Housing and Urban Development (HUD).
HUD doesn’t issue the loan, but it works with private lenders to help you get funding to make repairs, improvements, and alterations to your home — all without requiring you to secure the loan with a property.
However, you have to show you have the “ability to repay the loan in regular monthly payments” — what this means can differ since the ability to repay is interpreted by the lender and the government agency insuring the loan.
Advantages of getting a home improvement loan with no equity
Most unsecured home improvement loans have fixed interest rates, offering an advantage over home equity lines of credit that often feature adjustable rates, according to Jennifer Beeston, the vice president of mortgage lending at Guaranteed Rate.
“If the loan has an adjustable feature, you need to understand what the max adjustment interest rate is,” Beeston said.
Fixed rates become even more important in today’s environment of rising rates. With the Federal Reserve signaling more rate hikes in the coming months, it can make sense to lock in a rate with a fixed-rate unsecured home improvement loan.
The application process for a no-equity home improvement loan can be faster than for a traditional home equity loan, Anand pointed out. Because there’s no need for an appraisal, it’s possible to get your personal loan money in a matter of days, instead of waiting up to 30 days or more to get started on your project.
Finally, when you figure out how to get a home improvement loan with no equity, you don’t need to worry about losing your house if you can’t make your loan payments.
Drawbacks to getting a no-equity home improvement loan
Without equity to secure the debt, you might not be able to borrow as much money as you want.
LendingClub and Marcus limit loans to $40,000, and Avant won’t authorize a home improvement personal loan for more than $35,000. Even though it’s possible to borrow up to $100,000 from SoFi, you might not qualify for that amount if you don’t meet the lender’s income and credit requirements.
And in some cases, you’ll pay a higher interest rate for a no-equity home improvement loan, Anand said. If you have good credit, you might be able to get a lower rate using a personal loan. However, once your credit is in “fair” territory, a personal loan can have higher rates because it’s not anchored to an asset.
Choosing a no-equity home improvement loan
In the end, whether you get a home improvement loan with no equity depends on your goals and financial situation.
If you don’t have enough equity in your home to use it as security for your debt, you have little choice — it’s an unsecured home improvement loan or nothing.
However, if you do have the equity in your home, weigh your options. Compare interest rates and other terms, and think about whether you want to tie up some of your home’s value in an improvement loan.
“Home improvement personal loans are great for owners looking to make repairs or improvements, like adding new floors or remodeling a kitchen or bathroom,” said Anand. “It can help them get closer to their dream home without having to borrow against it.”
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|6.26% – 14.87%1||$5,000 - $100,000||Visit SoFi|
|6.99% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|6.99% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|