Home improvements can do wonders for the look and feel of a home. While you may be able to tap into your home equity to cover the cost of those improvements, doing so isn’t necessary. In fact, there are other ways to finance a home renovation without equity. A home improvement loan is one solution you might want to explore in addition to the others discussed below.

What is home equity?

Home equity is the difference between how much you owe on a mortgage and what your home is currently worth. If the mortgage balance is higher than the home’s value, that’s negative equity which can’t be used as a basis for a home equity loan.

There are several reasons for being in a negative equity situation. If the home was purchased with a small down payment and hasn’t been owned long enough, there hasn’t been enough time to build equity.

Also, if home values in your neighborhood or city dropped, you may lose equity in the home.

How to finance a project without adequate equity

If you have negative equity or no equity at all in your home, don’t worry. You could pay for a home renovation project with one of these financing solutions:

Home improvement loans

Home improvement loans are essentially personal loans intended for home improvement projects. Since they’re unsecured, they don’t require you to put up collateral like your home or its equity. Banks, credit unions, and online lenders offer home improvement loans and typically come with a convenient online application process and quick funding.

Credit cards

Some credit card issuers offer 0% annual percentage rate (APR) introductory or promotional offers for a set period. The cardholder must continue making minimum monthly payments and repay the balance in full when the intro or promotional period ends. If the cardholder meets those conditions, no interest charges will be paid, but keep in mind there is usually a transaction fee associated with the offer. If you have a minor home improvement project and feel confident you can pay off the intro or promo balance in time, you can save a lot of money. If you default, the unpaid balance will be subject to the standard APR disclosed by the issuer. That APR will likely be much higher than 0%.

Federal Housing Administration Title I loans

Federal Housing Administration Title I loans are guaranteed by the Department of Housing and Urban Development and can help you improve a home you’ve lived in for at least 90 days. You won’t have to use your home as collateral if the loan is for less than $7,500. If you go this route, remember that not all home renovations qualify for this type of loan. This program is designed for improvements to make the home more livable and useful, rather than pay for luxury add-ons.

The Bottom Line

While building up equity in your home can come in handy if you wish to make home improvements, it’s not essential to getting a loan. Before choosing a financing option that doesn’t require equity, understand its terms and conditions. Best of luck with your home renovation!


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