By: Kimberly Goodwin, PhD | Lendedu.com

Home equity loans are one of the best ways to fund major home improvement projects. You can get a low interest rate by borrowing against the equity in your home, and you can deduct the interest that you pay on the loan from your federal taxes.

Unfortunately, not all homeowners can take advantage of a home equity loan. If you recently purchased your home, you may not have built up enough equity for this loan.

However, you might not have enough equity because the value of your home has declined since the time you bought it. If you bought your home near the housing market crash in 2008, or if you had a small down payment, you might still be in this situation. Are there home improvement loans with no equity requirements?

Home Improvement Loans With No Equity

If you don’t have enough equity in your home for a home equity loan or line of credit, you might want to consider using a home improvement loan with no equity. Home improvement loans are usually a better option than using credit cards for home improvements, and you don’t need to have equity in your home to qualify.

Here are some of the reasons you might want to consider a home improvement loans with no equity:

No Equity Requirement

A home improvement loan is based on factors like your income and credit history rather than the amount of equity you have in your home. So, you don’t need to have any equity at all in your home to get a loan for your home improvements.

Larger Loan Amounts

The amount of money a lender gives to a borrower is dependent upon factors such as income and credit history along with the proposed use of the funds. Some borrowers may not be able to get a personal loan for more than around $5,000. Borrowers with higher incomes and excellent credit, however, might be able to borrow up to $100,000 with a personal loan.

Unsecured Funds

When you receive a home equity loan or line of credit from a lender, your home serves as the collateral for the loan. This is a secured loan or line of credit, and that gives the lender the right to foreclose against your home if you default on your home equity loan.

On the other hand, a personal loan is an unsecured loan. The interest rate is higher since there isn’t property serving as collateral, but you don’t have to worry about losing your home if you can’t make your loan payment.

Online Application

You can apply in person at your local bank branch for a personal loan, but you can also complete the application process online. There are even online personal loan lenders who offer highly competitive interest rates.

In addition, the application process for a personal loan is much less complex compared to the application process for a home equity loan. You’ll need to provide income verification, but there are few other documentation requirements.

Possible Next-Day Funding

Since personal loans require far less documentation and have fewer regulatory requirements for the lender, the approval process can proceed much faster than it would for a home equity loan. Some lenders can even send the money to your bank account the next day.

Getting the money from your personal loan should not take more than three to five days. That is a lot faster than waiting for the funds from a home equity loan, which is good news if you are ready to get started on your home improvements.

Low Interest Rates

The interest rates on personal loans are not as low as the interest rates on home equity loans and lines of credit. The reason that lenders can offer such low interest rates on home equity loans is that the collateral dramatically reduces their risk of loss.

Lenders face a greater risk of loss with personal loans since they are not secured loans. Therefore, they charge higher interest rates. Borrowers with good credit should find that they could get a personal loan at a lower interest rate than they have on their credit cards. Borrowers with excellent credit may find that the interest rate on their personal loan is more than half the interest rate on a credit card.

Variety of Term Length Options for Repayment

Personal loan repayment options vary by lender. Some lenders only offer relatively short repayment terms of three to five years. Other lenders may extend the repayment term out to seven to 10 years. Do your research to make sure you find the best option for you.

Financing Home Improvement Without Equity

You can still get a loan to finance your home improvements even if you don’t have equity in your home. The process of getting a personal loan can be relatively quick and easy compared to a home equity line of credit. Although the interest rates on a loan are higher than home equity rates, they are still much cheaper than credit card interest rates.

This content is not the product of the National Association of REALTORS®, and may not reflect NAR's viewpoint or position on these topics and NAR does not verify the accuracy of the content.