Best Home Improvement Loans With Bad Credit

Bad-credit home improvement loans vs. home equity financing

If you have equity in your home, borrowing against it could be an affordable way to finance the renovation. While you typically need a credit score of at least 620, lenders may offer home equity loans and lines of credit because the home is collateral for the loan, meaning they can take it if you fail to repay.

Home equity loans let you lock in a fixed interest rate for a lump sum of cash. HELOCs are open credit lines with variable rates that you draw from as you need for about 10 years. Repayment terms can be 15 to 20 years for these financing options, which keeps monthly payments lower than a personal loan.

Depending on your plans, a cash-out refinance may make sense. This is a new mortgage that’s larger than the existing one. You “cash out” the difference between what you currently owe and the new loan and use the funds for the renovation. It's typically a good option if rates are lower than what you’re currently paying.

» MORE: Best cash-out refinance lenders

How to compare home improvement loans with bad credit

A home improvement loan could be a good choice if you don’t want to tap home equity or max out your credit cards on the project. Just be prepared for high interest rates if you have bad credit.

» COMPARE: See your bad-credit personal loan options

Here are some features to compare among bad-credit home improvement loans.

• APR: The annual percentage rate reflects the full cost of a loan, including any fees the lender charges. APRs are usually 6% to 36%, but borrowers with low credit scores can expect an APR above 20%. Use APR to compare the cost of one personal loan to another or to compare it to other financing options.

• Monthly payments: A home improvement loan calculator lets you preview the loan’s monthly payment at different rates and repayment terms. This can help you decide what loan offer you need to stay within your budget.

• Repayment terms: Bad credit home improvement loans often have repayment terms of one to five years, but some lenders have more limited options. A longer-term loan will have lower monthly payments but higher overall interest costs, so look for a term that strikes a balance.

• Fast funding. Many lenders can fund a loan in less than a week, and some say they can get you the funds the day you apply. If you’re paying for an urgent repair or an in-progress project, look for a lender that offers fast funding.

» MORE: Compare fast personal loans

How to qualify for a bad-credit home improvement loan

Your credit score is a major factor in deciding whether you get a personal loan, but there are a few things you can do to improve your chances.

• Stay on top of payments. Your payment history is the biggest factor influencing your credit score. On-time bill payments look good on a loan application and help you build credit.

• Pay existing debts to lower your debt-to-income ratio. Most lenders want to see that you have enough cash each month to cover existing expenses, plus the extra loan payment.

• Add a co-signer or co-borrower. Adding someone with better credit and a high income to vouch for you on the application can boost your chances of qualifying or get you a lower rate. However, your co-applicant must repay the loan if you fail to.

• Get a secured loan. With a secured loan, you attach collateral to the application, like a car or savings account, in exchange for a lower rate. The lender can take the collateral if you don’t make the payments.

» MORE: Best secured loans

Many lenders let you pre-qualify online to preview your potential rate and loan amount. The process doesn’t require a hard credit pull, so your score won’t be affected, and it can set expectations for the loan you may get.

Home improvement loan alternatives for bad-credit borrowers

Government-insured loans for home improvements

Home improvement loans insured by the Federal Housing Administration are similar to conventional mortgages but have looser qualification requirements. You usually need a minimum credit score of 500 to qualify for any FHA-insured loan.

Rates vary by lender but are often lower than personal loans.

FHA 203(k) renovation loan: With a 203(k) loan, you refinance your existing mortgage and roll home improvement costs into the new mortgage. In addition to meeting a lender’s credit requirements, borrowers must have no foreclosures within the past three years.

The 203(k) loan process can be time-consuming. You must work with a mortgage lender to pre-qualify, a general contractor to create a scope of repairs and a HUD consultant to complete an inspection.

FHA Title I loan: The requirement to get this type of loan is pretty broad. According to the HUD website, this loan can be used for home improvements that “substantially protect or improve the basic livability or utility of the property.”

Title I loans under $7,500 are unsecured, while larger loans must be secured by a mortgage or deed of trust on the property, according to HUD.

Family loans

If you don’t qualify for another type of loan but urgently need a small amount of cash, it may be worth asking a friend or relative to lend you the money. Family loans don’t require good credit and they allow you and your friend or relative to decide on interest and repayment terms.