If you think you’re ready to tackle a major home improvement project, your first question may be how to pay for it. Whether you need to get a new roof or renovate your whole house, a home improvement loan can help you access the money to make it happen.

But qualifying for home improvement loans with bad credit can be a challenge. That doesn’t mean you’re completely out of luck, though. Here’s what you need to know.

Bad Credit Home Equity Loans for Home Improvement

Bad Credit Personal Loans for Home Improvement

Methodology: The best bad credit home improvement lenders are selected based on consumer ratings, minimum FICO credit scores and product availability.

Whenever you borrow money, the lender evaluates your finances to determine the likelihood that you’ll pay back the loan. Your credit score, a numerical representation of your borrowing risk, is a major factor in lending decisions.

Lenders typically require a FICO credit score of at least 620 to qualify for home loans, including home equity loans, but some loan programs can help you borrow with a lower score. A FICO score of 620 falls in the fair range, and a good score is 670 or better.

Before the coronavirus outbreak, “It was possible to get a loan or mortgage with a credit score as low as 500. (Now) most, if not all, lenders have temporarily raised their credit score minimums up into the 600s,” says Eric Jeanette, owner of mortgage loan marketplaces Dream Home Financing and FHA Lenders. “Today, finding any mortgage with bad credit has become very difficult.”

That goes for home improvement loans as well. In fact, three common home improvement loans may not be options if your credit score is too low, says Randall Yates, founder and CEO of The Lenders Network, a loan comparison site for borrowers with credit issues. That includes home equity loans; home equity lines of credit, or HELOCs; and cash-out refinances.

The credit requirements for home equity loans and HELOCs are similar to or even stricter than mortgages. That’s because one of these loans functions as a second mortgage on a property, and borrowers have a higher risk of default.

A cash-out refinance is also risky because you replace your traditional mortgage with a new loan for more than what you currently owe on your home, Yates says.

In general, bad credit home improvement loans are few and far between, including no-credit-check home improvement loans. “All home improvement loans require a credit check and a home appraisal,” Yates says.

If you have bad credit and need a home improvement loan, you might need to look to other financing sources, such as personal loans or government-backed loans.

If your credit disqualifies you from getting a home equity loan or cash-out refinance, you still have options.

Which loan is the right fit for you depends on your needs and preferences, but the options below could be good bets if your credit is less than perfect.

HUD 203(k) renovation loan: One of the best programs for financing home improvements is the U.S. Department of Housing and Urban Development 203(k) loan, according to Jeanette. It allows you not only to purchase or refinance a home with as little as 3.5% down but also to borrow the money you need to renovate your home.

Because these loans are backed by HUD’s Federal Housing Administration, they are much less risky for lenders, so credit requirements may be looser. The FHA requires a minimum credit score of 500, but each lender may have its own score requirement. You must also have no foreclosures in the last three years.

Title I loan: Another government-backed home improvement loan option is a Title I loan, which is insured by HUD. These loans can be used to finance improvements and repairs for a home, including a manufactured home, that has been occupied for at least 90 days.

Title I loans have no credit score requirements, and you can qualify for one of these loans, even if you haven’t built up equity.

If you borrow less than $7,500, the loan is unsecured; larger loan amounts must be secured with a mortgage or deed of trust on the property. No property inspection is involved.

Energy Efficient Mortgage program: The FHA’s Energy Efficient Mortgage program helps consumers with FHA mortgages finance improvements to make their homes more energy-efficient. For example, you could take out an EEM loan to install solar panels or upgrade insulation.

Similar to 203(k) and Title I loans, EEM loans are provided by independent lenders but are federally insured. This means that they may be easier to qualify for than traditional home improvement loans.

The FHA may allow you to get an EEM loan with a down payment of 3.5% and a credit score of 500, but requirements may differ among lenders.

Personal loan: “If you don’t have enough equity, or if your credit is not good enough to qualify for a home improvement loan, you can look into a personal loan,” Yates says.

Personal loans can be used for many reasons, including financing home improvements and repairs. An unsecured personal loan is ideal because you don’t have to pledge collateral and risk losing your home or other assets.

But if you have poor credit, you may have to get a secured loan, using your home or car as collateral to reduce the lender’s risk.

Generally, you can borrow between $1,000 and $100,000 with a personal loan. And because the repayment period is usually just two to five years, you can avoid racking up interest charges.

The problem is that with poor credit, personal loans can carry interest rates of 30% or more. Even so, a personal loan may be your best bet for financing, as long as you have repairs or improvements that don’t require a large budget.

Home improvement loan from a credit union: If you’re having trouble qualifying for a bad credit home improvement loan from a major bank, you might have more luck with a credit union. Because they are nonprofits, credit unions may offer lower interest rates and more flexible credit requirements to borrowers than major financial institutions.

You’ll have to become a member of a credit union to take advantage of its benefits. Membership may be limited to a community, an employer or a church, for example.

Some credit unions also allow you to join by opening a small savings account.

Other government-backed programs: Many government-backed home improvement loans are available to borrowers. Often, these loan programs have low or no credit score requirements.

Two examples are the U.S. Department of Agriculture’s Single Family Housing Direct Home Loans program and the U.S. Department of Veterans Affairs’ Specially Adapted Housing grants.

Low-income rural homeowners can use the USDA’s direct home loans to repair, renovate or relocate homes. The borrower must be unable to get a loan from other sources and have a “reasonable” credit history, according to the loan officer.

Specially Adapted Housing grants are for veterans and service members with certain disabilities. The grants don’t have to be repaid, which means you don’t need a credit check to qualify. They fund home improvements that allow for more comfortable and independent living.

Make sure your credit score is as high as possible before applying. That means you might want to work on repairing your credit, especially if your project isn’t urgent.

Yates suggests taking time to pay down debt, especially credit cards, to give your score a boost.

If you must borrow money for a home improvement project now, compare loan offers and interest rates from three to four lenders to ensure that you’re getting the best deal. Getting a few different quotes can help you negotiate loan terms, Yates says.

Of course, borrowers with good credit qualify for the best loan terms and lowest interest rates. “In some cases, such as a mortgage loan, good credit can save you tens of thousands of dollars over the course of
the loan,” Yates says.