Home improvement loans made easy

When you apply for a home improvement loan through Prosper, you may be able to access home improvement financing anywhere between $2,000 and $50,000¹

The more complex question may be: how much will you need to borrow for your home improvement or home renovation project? Budget is top of mind for most people renovating or improving their home. When you estimate the costs of your project, it’s good to add an additional portion of expenses on top of your budget to account for unexpected costs.

A home improvement loan is an unsecured personal loan taken out to finance home improvement or renovation.

Home improvement loans through Prosper are a versatile way to finance making your house feel more like a dream home. Just like other types of personal loans, a home improvement loan through Prosper has a fixed interest rate and a set monthly payment. You agree to repay it over one of the terms that you choose in your offer. Personal loans for home improvement through Prosper have no pre-payment penalties, so you can pay the whole thing off early and save on interest.

The best home improvement financing option depends on your situation. The most common methods are construction loans, personal loans, home equity loans, or home equity lines of credit.

It’s important to understand the differences between these four home improvement financing options to understand which is best for you.

Construction loans can be used to build a new home, add an addition, or renovate the home you’ve got. Whatever the project, in order to qualify, your lender will want to see evidence of a construction timeline, detailed plans, and a realistic budget. Keep in mind that it is usually harder to qualify for a construction loan than it is to obtain a mortgage or qualify for the other two loan types, but the size of a construction loan may be considerably larger than what is typically associated with personal loans for home improvements. Additionally, most construction loans come with variable interest rates and short terms. You’re generally expected to pay off the loan as soon as the construction project is complete.

Personal loans for home improvement (variously referred to as home renovation loans, home improvement loans, home improvement financing, home repair loans, and home remodel loans) are considerably more flexible than a construction loan. You don’t need to secure this kind of loan with any collateral, and you don’t need to own your home in order to get this kind of loan. You can use a personal loan for home improvement to buy new furniture or renovate your kitchen.

A home equity loan (aka HELoan) is a home financing option that requires borrowers to own their home. Home owners are able to tap into the equity they’ve built in their home (calculated by subtracting whatever they still owe on their mortgage from the estimated total value of their home). HELoans are generally large lump sum loans which borrowers will start repaying as soon as they receive the funds.

A home equity line of credit is a revolving source of funds that functions much like a credit card. Unlike a home equity loan, a HELOC does not involve closing costs and usually has a variable rate.

[1] https://www.bankrate.com/mortgages/construction-loans-explained/

Personal loans for home improvement are not tax deductible, but different types of loans for home improvement can be.

Home improvement loans can be tax deductible if they meet the following criteria:

• If your home is used to secure the loan.
• If the loan is used to improve the home. You cannot use the loan for repair or maintenance.
• Lastly, the deduction amount cannot exceed $375,000 in a single filing. The limit is $750,000 if you’re filing jointly.

A personal loan is unsecured, meaning you do not use your home as collateral to secure a personal loan for home improvement. Unsecured personal loans for home improvement are not eligible for tax deductions because your home is not used to secure the loan.

A home improvement is a modification to the home that increases its value. Some examples of what the IRS defines a home improvement in this category include:

• Energy efficiency improvements
  • Solar panels
  • Water heaters
  • Small wind turbines
  • Improving doors and windows
• Accessibility improvements
  • Exit/entrance ramps
  • Expanding hallways and doorways
  • Installing lifts between floors
• Improvements that raise retail value
  • Building additions
  • Finishing a basement
  • Finishing an attic
  • Adding bathrooms
  • Adding a swimming pool

Some examples of what the IRS defines as a repair (and is thus not tax deductible) include:

• Replacing broken windowpanes or door frames
• Fixing damaged flooring/carpet
• Repairing/fixing broken hardware

This is not to be construed as tax advice and we recommend consulting with a tax professional for more information.

According to renofi.com, home improvement projects provide an average return on investment of 70%. Different projects will affect the value of your house in different ways. It’s important to do your research to discover what kinds of home renovations or improvements provide the most value. Everyone has their own preferences, and preferences often change over time. According to renofi.com some of the most profitable renovation/improvements include but are not limited to:

• Finishing a basement
• Replacing a garage door
• Repairing a home’s exterior
• Replacing carpet with solid flooring
• Adding a bathroom or making a bathroom more accessible
• Kitchen renovations

Making improvements to your home’s energy efficiency can provide a return value regardless of whether you sell to recoup the investment. Solar panels and energy efficient appliances can significantly reduce the cost of utilities.