Best Home Improvement Loans: Which Loan Type Is Right for You?

It’s important to understand your financing options—and any equity involved—whether you’re gutting your kitchen or adding an ADU.

Here’s how each one works.

Renovation financing at a glance

Unsecured personal loan or home improvement loan

An unsecured personal loan delivers a lump sum based on your credit profile, income, and financial history—not your home equity. There's no appraisal, no lien on your property, and no collateral on the line.

The process to get a personal loan moves faster than home equity financing—and so do the funds. Good-credit borrowers may be able to secure APRs between 11% and 15%, and you’ll have the money within days in many cases.

BHG Financial, for example, offers large personal loans up to $250,000² with no collateral required—enough to fund most large-scale renovations without tapping home equity.

Pros

• No collateral required
• Fast funding—as few as 5 days¹
• Fixed rate and fixed monthly payments
• No appraisal or title work required
• No prepayment penalties (option to pay off loan early)

Cons

• Higher APR than equity-backed products for most borrowers
• Interest is not tax-deductible
• Loan amounts are capped at $250,000²

Personal loan interest is not deductible under current IRS rules, even when funds go toward home improvements. For borrowers in higher tax brackets who would otherwise itemize, that's an important consideration.

Home equity line of credit

A HELOC is a revolving line of credit secured by your home, typically structured with a draw period (often 10 years) followed by a repayment period of up to 20 years. You borrow what you need, when you need it, and pay interest only on the outstanding balance during the draw period.

Rates are variable, tied to an index like the prime rate, and can change monthly. Closing costs typically range from 2% to 5% of the credit line and may include appraisal, origination, and title fees.

Most lenders require a combined loan-to-value (CLTV) ratio of 85% or less and a credit score of 640 or higher, though better terms are generally awarded to those with scores above 720.

While you can deduct HELOC interest in some cases, there are some caveats. Under IRS Publication 936, it’s deductible only when funds are used to buy, build, or substantially add value to your home. This doesn’t include basic upkeep—painting a room doesn't qualify, but replacing a roof does.

Pros

• Flexible draw schedule
• Pay interest only on what you use
• Lower rates than unsecured options
• Potential tax deductibility

Cons

• Variable rate creates payment uncertainty
• Your home is collateral
• Closing costs add to total borrowing cost
• Appraisal required
• Overutilization of HELOC can lead to a drop in credit score

One important consideration: Don't begin demolition or major structural work before your HELOC appraisal is complete. A home mid-renovation may appraise significantly lower than its pre-demo value, reducing your available credit line or disqualifying your application entirely.

Home equity loan

A home equity loan delivers a lump sum at a fixed interest rate, repaid in equal monthly installments over a set term (typically five to 30 years). It functions as a second mortgage, sitting behind your primary loan in lien priority.

You can typically borrow up to 80% to 85% of your home’s value, but the approval process can take a few weeks.

Interest starts accruing on the full loan amount the moment funds hit your account. There's no draw-as-you-go, which is important to consider if your home improvement project will be completed in phases.

Like a HELOC, interest may be tax-deductible under IRS Publication 936—if funds go toward substantially adding value to your home.

Pros

• Fixed rate and fixed monthly payment
• Predictable budgeting over the life of the loan
• Lump sum suits fixed-bid projects
• Potential tax deductibility

Cons

• No flexibility to draw incrementally
• Interest accrues on the full balance from day one
• Home is collateral
• Closing costs apply
• If home values fall, you could owe more than the property is worth

The same renovation timing applies as with a HELOC: lock in your home equity loan before starting any work that could affect your appraisal.

Cash-out refinance

A cash-out refinance replaces your existing mortgage with a new, larger loan. The difference between the new loan amount and your current balance is paid to you in cash. Rates are typically lower than unsecured personal loans, and interest on the mortgage portion may be deductible.

To qualify, you'll generally need at least 20% equity in your home, with most lenders capping borrowing at 80% of your home's appraised value. Closing costs run 2% to 6% of the loan amount, and the timeline typically falls between 30 and 45 days.

The critical consideration is your current mortgage rate. If you're carrying a 3% mortgage and current refinance rates are significantly higher, you're paying a premium on your entire loan balance—not just the cash-out portion.

For many homeowners, a cash-out refi is a difficult trade to justify unless the project is large enough to offset the long-term rate cost.

Pros

• Lower rate than unsecured options
• Single monthly payment
• Potential tax deductibility on mortgage interest

Cons

• Replaces your existing mortgage rate
• Closing costs of 2%–6%
• Extends your mortgage term
• Home is collateral

Below, we cover three common scenarios—from emergency repairs to large projects with limited equity—and explain which loan type makes the most sense for each.

When you want to protect a low mortgage rate

If you locked in a mortgage rate below 4% in recent years, a cash-out refinance is likely not the right fit. Replacing that rate with today's market average means paying more on your entire mortgage balance (not just the renovation portion) for the life of the loan.

A second lien keeps your first mortgage intact, but your home is still considered collateral. If your project costs are fixed, a home equity loan is the stronger fit. If costs are still evolving, a HELOC gives you more flexibility.

A HELOC lets you draw what you need, pay interest only on the balance, and repay on a revolving basis. But variable rates mean your payment can shift.

If a HELOC currently carries a 7.03% rate and rates rise by two percentage points, a $50,000 balance would see annual interest climb from roughly $3,515 to $4,515.

On the other hand, a fixed-rate home equity loan eliminates that uncertainty. You know your payment on day one, and it doesn't change, but home equity loans carry risks that other financing options like personal loans don’t, particularly your home serving as collateral.

When you need under $20,000 for fast emergency repair funding

For urgent repairs—a failed HVAC system, roof leak, broken water heater—speed often matters more than rate. In this situation, an unsecured personal loan can be the right choice. With funding arriving in days and no need for an appraisal, title work, or a lien on your property, you can schedule the repair immediately.

For smaller amounts, a 0% introductory APR credit card is worth considering, but only if you can pay the full balance before the promotional period ends.

The risk with promotional credit card financing is deferred interest. Many cards apply retroactive interest to the original balance if any amount remains unpaid when the promo period expires.

That can turn a 0% offer into an expensive surprise. Carrying a balance also increases your credit utilization ratio, which can affect your credit score.

Compared to credit cards, personal loans can give borrowers a clear payoff timeline since the loan principal is disbursed in a lump sum.

When you’re funding a large project ($75,000 to $250,000) with limited equity

If your project runs $75,000 to $250,000 and equity is limited—or you'd simply rather not put your home on the line—a high-limit unsecured personal loan is the best fit.

Some lenders offer loan amounts over $200,000 with no collateral required and faster approval timelines than home equity financing.

BHG Financial, for example, offers personal loans up to $250,000² with approval decisions in as little as 24 hours and funds available in as few as five days.¹

The trade-off is rate. Unsecured loans carry higher APRs than equity-backed products because the lender has no collateral to fall back on. However, the rates are fixed, and terms range from two to 10 years^2,3 (through BHG Financial), giving you predictable monthly payments and a clear payoff timeline.

With personal loans for prime credit borrowers, the rate differential versus a HELOC narrows—and the absence of closing costs, appraisal fees, and lien risk can make the total cost of borrowing more competitive than it appears at first glance.

Ultimately, the best loan depends on your equity position, whether your project costs are fixed or evolving, and how fast you need the money.

• If you have equity and project costs are uncertain: A HELOC lets you draw as needed and pay interest only on what you use.
• If you have equity and a firm contractor quote: A home equity loan gives you a lump sum at a fixed rate with predictable payments.
• If you want speed or don't want to use your home as collateral: An unsecured personal loan funds faster with no lien on your property.

Keep in mind, equity-backed products put your home on the line if you default, and HELOCs carry variable rates that can rise. For tax deductibility questions, consult a tax professional since the rules depend on how funds are used and whether you itemize.

Large unsecured personal loans² through BHG Financial are best for high earners who want fast, flexible financing without putting their home on the line.

Whether you're protecting a low mortgage rate, working with limited equity, or need funds before a HELOC or refinance would close, BHG Financial is built for borrowers who need more than a standard personal loan can offer.

Loan amounts go up to $250,000² with industry-leading repayment terms up to 10 years,^2,3 which is enough borrowing power to fund a major home project while keeping monthly payments manageable.

There are no application fees to check your rate, prequalification uses a soft credit pull with no impact to your credit score⁴, and if approved, funds arrive in as few as five days.¹

Ready to get started on your home renovation? Get your personalized loan estimate now.

What is the best type of loan to get for home improvements?

The best type of home improvement loan depends on equity, speed, and risk tolerance. A home equity loan or HELOC works well if you have enough equity, because these secured options often offer lower interest rates than unsecured loans.

A home equity loan fits a one-time, fixed-cost remodel (fixed rate, lump sum). A HELOC fits projects with phases because you can draw funds as needed, often at a variable rate.

If you don’t want to use your home as collateral or need fast funding, a personal loan for home improvements could be the better fit. It typically has higher rates, but quicker approval and no lien on your home.

Are home improvement loans a good idea?

A home improvement loan can be a good idea when it reduces total cost versus other loan alternatives, and the project improves safety, functionality, or long-term value.

They make the most sense when you can afford the payment comfortably and the loan term matches the life of the improvement.

What is the 30% rule in remodeling?

The 30% rule in remodeling is a budgeting guideline that suggests you should avoid spending more than about 30% of your home’s value on renovations, especially if your goal is resale value.

It’s used to reduce the risk of over-improving a property relative to the neighborhood and market.

Is $200,000 enough to renovate a house?

$200,000 can be enough to renovate a house, but it depends on the home’s size, local labor/material costs, and whether you’re doing structural work, major systems, or high-end finishes.