A home equity loan is one of the most common ways to fund a home improvement project. It borrows against the difference between what your home is worth and what you still owe on your mortgage, then turns that difference into a fixed loan amount. When that difference is too small, you’ll need to consider home equity alternatives. A home improvement loan from People Driven Credit Union is one option, and there are a few ways to build your equity up for the future.
What Counts as Low Home Equity
Most lenders look for at least 20% equity before approving a home equity loan, a home equity line of credit (HELOC), or a cash-out refinance. If your home is worth $500,000, that means owing no more than $400,000 on your mortgage.
Many longtime homeowners have already cleared that 20% mark. If you haven’t yet, there are a few things you can do to get there.
Getting Funds with Low Home Equity
Home Equity Agreement
One option for low-equity homeowners is a home equity agreement, or HEA. An investor gives you a lump sum worth roughly 20% to 30% of your home’s total value, and you repay that amount either when you sell the home or at the end of the agreed term. There are no monthly payments, which is much of the appeal.
The catch is that if your home’s value rises before you repay, you owe the investor a share of that increase as well. If the whole point of the project is to raise your home’s value, that structure works against you: the more the home appreciates, the more you must pay back.
Home Improvement Loan
A home improvement loan is the lower-risk approach. It’s an unsecured personal loan, so it isn’t tied to your home’s value, and equity never enters the picture. You repay it in fixed monthly installments at an agreed rate, and the balance doesn’t climb as your home appreciates. The uses are flexible: move-in refurbishments, a refresh of a home you’ve lived in for years, or urgent repairs.
The equity and credit requirements are less stringent. But because the loan isn’t secured by your home, the rate is generally higher than that of a home equity loan or HELOC; the cost increases in the absence of collateral.
At People Driven Credit Union, home improvement loans start at 6.50% APR*, and there are no prepayment penalties if you want to pay the loan off early.
APR = Annual Percentage Rate. Rates are subject to change and are based on creditworthiness, loan amount, loan term, collateral, and other underwriting factors. Membership and eligibility requirements apply.
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How to Improve Your Home’s Equity
There are a few ways to build equity for a home equity loan down the road.
Time and Patience
If the project can wait, waiting is the simplest route. Every payment you make against your mortgage principal increases your equity.
Home values can also rise on their own with the market, though that approach is often double-edged; the market can move down just as easily as it can move up.
Do-It-Yourself
The most reliable way to build equity is to raise your home’s value yourself. Say your home is worth $500,000 and you still owe $450,000: your equity sits at 10%, well below the benchmark. If improvements push its value to $600,000 and your balance stays at $450,000, your equity climbs to 25%.
Any improvement helps, but some return more than others.
- Curb Appeal: The exterior shapes the first impression an appraiser or a buyer forms, so updated landscaping, a repainted front door, or a new garage door can each return more than they cost.
- Energy Efficiency: These projects save you twice: lower utility bills month to month, and a higher valuation later. New windows and insulation are the straightforward route, while solar panels or a new HVAC system are the larger investment.
- Kitchen and Bathroom Updates: The same logic as curb appeal, turned indoors. New countertops, new sinks, new cabinets, or even fresh paint can improve a room without requiring a major expense.
Get Started on Your Home Improvements Today
When you’re ready to start, you can apply online in minutes for a personal loan from People Driven Credit Union. Approval timing and funding depend on application details, required documentation, underwriting, and final loan closing.
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Frequently Asked Questions
Personal loan rates are based on several factors, including creditworthiness, the amount borrowed, income, and other application details. Your actual APR and loan term are subject to approval, and rates may change over time. For a fuller picture of APR, monthly payments, repayment terms, and total borrowing costs, read What to Know Before Applying for a Personal Loan.
The Special Loan Rate Discount is a 0.25% APR reduction for setting up automatic payments (AutoPay) on your loan from a People Driven Credit Union checking or savings account. It’s already built into the “as low as” rate advertised. The discount applies only to eligible loans with AutoPay set up from a People Driven Credit Union account, and terms and conditions may apply.
Usually not. Home improvement loans are typically unsecured personal loans, so nothing is pledged against them. For a larger project, it’s worth comparing a fixed-term home equity loan or HELOC, both of which are secured by your home.
Terms vary by loan amount and loan type. A longer term lowers your monthly payment and raises the total interest you pay over the life of the loan, while a shorter term does the reverse.
Credit requirements vary by loan type and applicant. People Driven Credit Union reviews your application based on creditworthiness, income, loan amount, term, and other underwriting factors.
A home improvement loan is typically an unsecured personal loan: you borrow a set amount, repay it in fixed monthly installments, and no collateral is required. A home equity loan is secured by the equity in your home, which often means a larger loan amount and a lower rate, but you have to meet an equity threshold to qualify.
