What Type of Loan Do I Need to Make Upgrades to My Home?

By: TXRB Staff | 24 Oct 2022

Home Upgrades

Owning a home is one of the best strategies for building wealth and diversifying your financial portfolio. But, more than that, it is a way to build a loving place for you and your family. Home improvement can be a rewarding way of customizing your home and adding value to your investment. Anyone that has done work on their home knows the feeling of accomplishment after finishing a project and getting to enjoy the improvements for years to come. And, while that feeling might be well worth it, it is not always an easy road getting there.

Most home upgrades and improvements are not cheap. For kitchens under 200 square feet, the average cost for an upgrade was $12,000. A small price when you consider that kitchens over 200 square feet cost $40,000! The average cost for a guest bathroom was $3,200 and a primary bathroom was $8,000. This is not even considering what a home repair might cost you. Many repairs can not be planned in advance as a home upgrade so saving for the expense might not be a viable option. So, what’s a homeowner to do?

There are many options for financing a home upgrade or home repair, so we rounded up some of the most popular. To see if you qualify and get more information, come talk to one of our experienced loan officers directly!

Home Equity Loan (HEL)

A home equity loan is what it sounds like: a loan against the equity you have built in your home. HELs do not pay off your existing mortgage, so you would continue making monthly payments on your mortgage while paying on this new loan.

Your equity is calculated by assessing the value of your home and subtracting the balance of your mortgage.

Key Facts About Home Equity Loans

  1. Home Equity Loans can last from 5-30 years and the interest rate is usually fixed.
  2. You can borrow up to 80% of your calculated home equity making HELs ideal for big home projects
  3. Borrowers receive one lump sum payment at the start of the loan. Homeowners should be cautious to have the home improvement project carefully budgeted so that the cost does not exceed this lump sum.

HELOC (Home Equity Line Of Credit)

A HELOC is similar to a home equity loan because it also uses the equity you have already built up in your home. Unlike the HEL, home equity lines of credit do not disperse payment in one lump sum upfront. Instead, HELOCs give the homeowner a pre-approved amount of credit and the borrower can use up to that amount, pay it back, and borrow from it again. Because of this flexibility, HELOCs are an attractive option for homeowners without a set-in-stone budget.

Key Facts About Home Equity Lines of Credit

  1. Unlike the HEL, interest rates are adjustable and only applicable to the actual amount that the homeowner has borrowed from the HELOC (so if the maximum amount of credit available is $10,000 but you have only used $1,200, you would only be charged interest on the $1,200).
  2. HELOCs are determined by the homeowners’ equity, credit score, and income. Terms can last from 5 to 20 years.
  3. Closing costs are minimal.
  4. HELOC’s terms can be subject to change during the life of the loan lowering or raising the amount of credit. At the end of the loan term, the borrower can pay off the existing balance or convert the loan into an amortizing loan.

Personal Unsecured Loan

If you don’t have equity in your home to use as collateral, a personal loan might be a good option for you. Personal loans are typically subject to higher interest rates than HELs or HELOCs but they can have a much faster qualification period. Personal loans are a standard financing vehicle for homeowners needing to make emergency repairs to their homes.


If you are struggling to decide how to finance your home improvement project, come talk to us directly and get some insight from one of our local experienced loan officers!

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