Home Improvement Loans: How To Finance Your Renovation

A home improvement loan is any financing used to pay for renovations, repairs or upgrades to your home and the term covers several distinct products: personal loans, home equity loans, HELOCs, cash-out refinancing and specialty options like an FHA 203(k).

The right choice depends mostly on your project's size, how much home equity you have, and whether you need the money fast or can wait a few weeks for a secured option with a lower rate.

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Key Takeaways

• Personal loans work best for smaller projects, generally under $15,000 to $25,000, funding in as little as one to five days with no home equity required, but rates run higher, often 8% to 22% or more depending on credit.

• HELOCs and home equity loans cost less for larger projects, with 2026 rates averaging roughly 8.5% to 9.5% for HELOCs and 7.75% to 8.22% for fixed-rate home equity loans, but they take three to six weeks to open and put your home up as collateral.

• Interest on a home equity loan or HELOC can be tax-deductible if the funds are used to buy, build or substantially improve the home securing the loan, subject to a $750,000 combined mortgage debt cap. Personal loan interest is never deductible.

• The dollar gap between options is real. On a $40,000 renovation financed over five years, a personal loan at 15% APR costs roughly $17,084 in total interest, versus about $9,812 for a HELOC at 9% APR, a difference of over $7,000 before any tax benefit.

• Full-scale renovations above $100,000, or a purchase-plus-renovation project, usually call for a cash-out refinance or an FHA 203(k) loan rather than a standard personal loan or home equity product.

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What Types of Home Improvement Loans Are Available?

Personal Loans for Home Improvement

A personal loan is unsecured, fixed-rate financing that doesn't require any home equity, making it the fastest and lowest-friction option on this list. Loan amounts commonly range from $1,000 to $100,000, though most home improvement borrowers use them for smaller-scope projects.

MoneyLion's marketplace lets you compare personal loan offers from multiple lenders side by side.

Pros:

• No collateral required, so there's no risk to your home if you can't repay.

• Fast funding, often within one to five business days.

• Fixed rate and payment for the life of the loan.

• No closing costs at most lenders.

Cons:

• Higher rates than secured options, typically 8% to 22% or more depending on your credit.

• Interest is never tax-deductible, regardless of how you use the funds.

• Smaller maximum amounts at most lenders compared to what your home equity might support.

Most lenders look for a credit score around 660 or higher for competitive personal loan terms, though some lenders work with lower scores at a higher rate. If you're not sure how large a loan you'd qualify for, MoneyLion's guide on how much of a loan you can get breaks down how credit, income and debt-to-income ratio factor into that number.

Home Equity Loans and HELOCs

Both of these options let you borrow against your home's equity, but they work differently. A home equity loan gives you a lump sum with a fixed rate and a set repayment schedule, typically 5 to 30 years. A home equity line of credit (HELOC) works more like a credit card: a revolving line you can draw from as needed, usually with a variable rate.

If you're deciding between the two loan structures directly, MoneyLion's comparison of a personal loan vs. home equity loan and its breakdown of HELOC vs. personal loan can help you weigh the trade-offs side by side.

Pros:

• Lower rates than most personal loans, since your home secures the debt.

• Interest may be tax-deductible if the funds go toward qualifying home improvements.

• Larger available amounts for homeowners with substantial equity.

Cons:

• Your home is collateral. Missing payments puts it at risk.

• Longer approval and funding timeline, often three to six weeks.

• HELOC rates are variable, so your payment can rise if rates increase.

• Closing costs, often 2% to 5% of the loan amount, add to the upfront cost.

Is Home Improvement Loan Interest Tax-Deductible?

This is one of the biggest financial differences between your options, and it's worth understanding clearly.

Home equity loan and HELOC interest can be tax-deductible under the Tax Cuts and Jobs Act (TCJA) if the loan proceeds are used to "buy, build, or substantially improve" the home that secures the loan. This deduction is subject to a combined mortgage debt cap of $750,000 for married couples filing jointly (lower for single filers), and you must itemize your deductions to claim it, which isn't worthwhile for every homeowner given the size of the current standard deduction.

Personal loan interest is never tax-deductible, regardless of what you use the funds for, since it's unsecured debt not tied to your home.

Because this deduction only applies to secured home equity products, and only if you itemize, it's worth running the actual numbers for your tax situation, or talking with a tax professional, rather than assuming the deduction automatically tips the decision in a HELOC's favor.

MoneyLion offers a service to help you find personal loan offers. Based on the information you provide, you can get matched with offers for up to $100,000 from our top providers. You can compare rates, terms and fees from different lenders and choose the best offer for you.

How Much Does a Home Improvement Loan Cost?

Here's a real, calculated comparison to illustrate the stakes. On a $40,000 renovation financed over five years:

That's a difference of more than $7,000 in interest alone, before factoring in any tax deduction the HELOC might qualify for, which could widen the gap further for homeowners who itemize. The trade-off, of course, is that the HELOC takes longer to open and puts your home on the line, while the personal loan doesn't.

If you want to run these numbers for your own loan amount and rate, MoneyLion's guide on how to calculate interest on your loan walks through the formulas step by step.

How Do You Choose the Right Loan for Your Project?

Match your loan type to your project's size and your equity position:

• Under $15,000 to $25,000: A personal loan or a promotional-rate credit card often makes the most sense, especially if you need funds quickly or don't have significant home equity.

• $25,000 to $75,000: A home equity loan or HELOC typically offers a meaningfully lower rate for a project this size, assuming you have enough equity and can wait a few weeks.

• $75,000 and up, or buying a home that needs work: A cash-out refinance or an FHA 203(k) loan, which combines a home purchase and renovation costs into a single mortgage, are usually the more cost-effective paths for a project or purchase this large.

Beyond size, also weigh how much home equity you have (most home equity products require you to retain roughly 15% to 20% equity after borrowing), how quickly you need funds, and your own comfort level with putting your home up as collateral.

If you're also carrying other debt you're hoping to fold into the project, comparing a home equity loan vs. debt consolidation can help clarify whether combining those goals into one loan makes sense.

What Do Home Improvement Projects Typically Cost?

Knowing typical project costs can help you figure out which financing tier fits your plans:

• Bathroom refresh or new flooring: Often under $15,000.

• Kitchen remodel: Commonly $25,000 to $60,000 or more for a comprehensive renovation.

• Full-house or major structural renovation: Frequently $75,000 to $100,000-plus.

These figures vary significantly by region, material choices and labor costs, so get contractor quotes and add a 15% to 20% contingency buffer before finalizing your loan amount.

Bottom Line

Home improvement loans come in several distinct forms, and the right one depends mostly on your project's size and your available home equity. Personal loans win on speed and simplicity for smaller projects, but home equity loans and HELOCs typically cost meaningfully less for larger renovations, and their interest can be tax-deductible if you itemize and the funds go toward qualifying improvements.

Before you commit, run the real numbers for your specific project size, rate and term, since the gap between options can easily run into thousands of dollars in total interest.

Key Terms

• Home equity loan: A fixed-rate, lump-sum loan secured by your home's equity, typically repaid over 5 to 30 years.

• Home equity line of credit (HELOC): A revolving, typically variable-rate credit line secured by your home's equity, letting you draw funds as needed.

• Cash-out refinance: Replacing your existing mortgage with a new, larger one and taking the difference in cash to fund a renovation.

• FHA 203(k) loan: A government-backed mortgage that combines a home purchase and renovation costs into a single loan.

• Substantially improve: The IRS standard determining whether home equity loan or HELOC interest qualifies for a tax deduction under the TCJA.

• Combined mortgage debt cap: The $750,000 limit (for married couples filing jointly) on total mortgage debt eligible for the mortgage interest deduction, including qualifying home equity borrowing.

Summary generated by AI, verified by MoneyLion editors

Sources

• Publication 936: Home Mortgage Interest Deduction, Internal Revenue Service

• What Is a Home Equity Loan or Line of Credit?, Consumer Financial Protection Bureau

• 203(k) Rehabilitation Mortgage Insurance Program, Federal Housing Administration

Summary generated by AI, verified by MoneyLion editors

FAQ

Here are quick answers to common questions about financing a home improvement project:

What's the best type of loan for home improvements?

It depends on your project's size. A personal loan is usually best for smaller projects under $15,000 to $25,000, since it funds quickly with no home equity required. A home equity loan or HELOC typically offers a lower rate for larger projects if you have sufficient equity and can wait a few weeks to close.

Is home improvement loan interest tax-deductible?

Only for home equity loans and HELOCs, and only if the funds are used to buy, build or substantially improve the home securing the loan, and you itemize your deductions. Personal loan interest is never tax-deductible, regardless of how the funds are used.

How much can I borrow for a home improvement loan?

Personal loans typically range from $1,000 to $100,000. Home equity loans and HELOCs can go much higher, sometimes $500,000 or more, depending on your available home equity and lender.

What credit score do I need for a home improvement loan?

Most lenders look for a score around 660 or higher for competitive personal loan terms. Home equity products often have a lower minimum, sometimes around 620, though the best rates typically go to borrowers with scores above 740.

Is a personal loan or a HELOC cheaper for a large renovation?

For larger projects, a HELOC is usually cheaper. On a $40,000 renovation over five years, a personal loan at 15% APR costs roughly $17,084 in total interest, compared to about $9,812 for a HELOC at 9% APR, before any tax deduction the HELOC might qualify for.