One of the most reliable ways to fund a home improvement project is to tap into your home equity—borrowing against the difference between your home’s current value and what you still owe on your mortgage. But what if that gap isn’t there yet? Low home equity doesn’t have to mean putting your plans on hold. Here’s a look at your options, plus a few ways to build equity faster if you’d rather wait.
What Qualifies as Low Home Equity?
Most lenders require at least 20% equity to qualify for a home equity loan, home equity line of credit, or cash-out refinance. So if your home is valued at $500,000, you’d need no more than $400,000 remaining on your mortgage to clear that threshold.
Longtime homeowners often get there without thinking about it. But if you’re not there yet, you still have options.
Getting Funds with Low Home Equity
Home Equity Agreement
A Home Equity Agreement (HEA) involves an investor providing a lump sum—typically 20–30% of your home’s value—in exchange for a share of any future appreciation. You repay either when you sell or at the end of the agreed term, which is usually measured in decades. No monthly payments required.
The catch: if your home’s value goes up before repayment, you owe a cut of that increase too. If you’re taking out funds specifically to improve your home’s value, that’s worth thinking through carefully.
Home Improvement Loan
A home improvement loan is an unsecured personal loan—meaning it’s not tied to your home’s value and home equity doesn’t factor into qualification. You borrow a set amount, repay it in fixed monthly installments, and there’s no risk of your costs going up as your home’s value rises.
Uses are flexible: move-in updates, a long-overdue renovation, or emergency repairs. The main tradeoff compared to a home equity loan is a higher interest rate. A home equity line of credit might run 7–8% APR; a home improvement personal loan will typically be higher.
At People Driven Credit Union, home improvement loan rates start as low as 11.04%¹ APR, with no prepayment penalties if you want to pay it off early.
¹APR = Annual Percentage Rate. Rates, terms, and conditions are subject to change. Loan approval, rate, term, and amount are subject to application, creditworthiness, underwriting, and membership eligibility. Other restrictions may apply.
How to Build Your Home Equity
If you’d rather wait and qualify for a home equity loan down the road, here are a few ways to get there.
Time and Consistent Payments
Every mortgage payment chips away at your principal and adds to your equity. It’s slow, but it’s reliable. You can also benefit from broader market appreciation—though that cuts both ways, and banking on it isn’t a strategy.
Strategic Home Improvements
The right renovations can increase your home’s appraised value faster than waiting on the market. Say your original mortgage is $500,000 and you have $450,000 left—that puts you below the 20% mark. But if targeted improvements push your home’s value to $600,000, you’re suddenly at 25% equity.
Some projects tend to deliver more value than others:
- Curb appeal — Landscaping updates, a freshly painted front door, or a new garage door can make a strong first impression that exceeds the cost.
- Energy efficiency — New windows, insulation, solar panels, or an updated HVAC system can lower your energy bills now and improve your home’s value long-term.
- Kitchen and bathroom updates — New countertops, cabinets, sinks, or even a fresh coat of paint can meaningfully improve how your home shows without a full remodel price tag.
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Frequently Asked Questions About Home Improvement Loans
Rates are based on factors like creditworthiness, loan amount, income, and other application details. Your actual APR and term are subject to approval and may change over time. For a helpful overview of what to review before you apply—APR, monthly payments, repayment terms, total borrowing costs—check out What to Know Before Applying for a Personal Loan.
Home improvement loans are typically unsecured, so no collateral is required. For larger projects, People Driven Credit Union may also offer secured loan options using your home as collateral. A team member can walk you through what makes sense for your situation.
Repayment terms typically range from 12 to 84 months, depending on the loan amount. A longer term means lower monthly payments, but more total interest paid over time—it’s worth running the numbers before you decide.
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 larger loan amounts and lower interest rates, but requires meeting an equity threshold to qualify.
