The most popular way to finance a large home improvement project is with a home equity loan or line of credit or an FHA 203(k) loan. The most popular way to finance smaller projects is with cash: pulling it from savings or hopping from one no-interest credit card offer to another.
Even with financing, it takes a lot of money to spruce up your home. However, people who can't access any of these traditional sources may qualify for a different and highly affordable type of home remodeling loan. A zero-interest home remodeling loan may be available in your community.
This type of loan doesn't come through the federal government but from the agencies associated with transit, property taxes, licensing, roads, and courts: your local county government. Some counties work directly with lenders to offer these loans. Best of all, some loans are interest-free.
- These loans are intended to rehabilitate structures or correct violations, not purchase a new property or finance construction.
- Low-income homeowners may be eligible for subsidized funding or loans to use for home remodeling or needed repairs.
- Subsidized loans are part of a county's mission to maintain the value of housing stock, as well as a way to create projects that create jobs.
- Eligibility usually is determined by income and the value of the home.
- These types of no-interest or low-interest rehab loans are often available in your own county.
What Are These Programs?
Names differ from county to county, but they often go under the name of Home Improvement Program ("HIP"), home repair/improvement assistance, or a similar name. Some examples:
- The Redevelopment Authority of Allegheny County in Pennsylvania, for instance, has the Allegheny Home Improvement Loan Program.
- King County, Washington, offers grants and loans through its Housing, Homelessness and Community Development Division.
- The Tennessee Housing Development Agency has the Tennessee Repair Loan Program.
Under these programs, low-income homeowners take out a loan for home improvement purposes, and counties agree to subsidize the loan. Terms and eligibility vary depending on the government agency administering the program.
How Much Money You Can Save
Those who qualify will likely find it's worth the red tape involved in applying because it lets them fund a home improvement project at considerable savings. In one common scenario, a county might subsidize 3.5% of your loan's interest rate. Some counties help arrange 0% loans for some projects, such as boosting a home's energy efficiency.
Let's run the numbers for a partially subsidized loan. This example of a five-year $20,000 loan compares your costs with and without an interest rate reduction of 3.5%.
- Without the subsidy: With a 4.5% interest rate, you will pay about $372 per month. Total interest is $2,371.
- With the subsidy: With the interest rate at 1%, you will pay about $341 per month, for a savings of about $30 per month. Total interest is $512.
By taking out the HIP-style loan, you would save $1,859 in interest.
Why Counties Do This
Counties have a mandate to serve their residents, especially low-income families. On a larger scale, counties are interested in maintaining the value of housing stock. When housing stock declines, the overall quality of life declines. Finally, providing these loans drives the economic machine by helping create projects that create jobs.
How Much Can You Borrow?
A typical borrowing cap is around $25,000 to $50,000. It is rare to find HIP loans in the six figures. Some areas offer matching funds up to a specified limit.
Eligibility usually is determined by your income and the value of your home. Typical requirements:
- Your annual gross income must be below a certain limit.
- Your house must be valued below a certain limit.
- You must let the program administrator monitor the project.
- All county taxes must be paid in full.
- You cannot use the money to pay off other loans, even if those loans are house-related.
- You cannot use the loan money to pay for projects begun before the time that the HIP loan is approved.
- You must complete the project within a certain time period, such as one year.
If you're looking for a home improvement loan with fewer restrictions, there are a few unsecured options that suit your needs, if you can afford the interest payments.
Things You Cannot Use the Money for
Typically you are barred from financing such luxury projects as swimming pools, satellite dishes, hot tubs, decks, and so on. Some counties put limits on the types of appliances you can purchase with the loan, allowing only permanent ones (a furnace vs. a refrigerator, for example).
Loans are intended to rehabilitate structures, modernize any outdated issues, or correct violations, not purchase a new property or finance construction. Note, though, that some counties do have similar programs to help homeowners purchase properties.
Where to Find Programs
There's no guarantee your county will have this program. You might find one under social services, housing, or community development departments on your local county's website. If searching within the county, use the words "housing improvement," "HIP," or "repair assistance."
In a web browser, you might try searching for "low-cost home improvement" + "loan" + your county's name. The Rural Development Department of the U.S. Department of Agriculture links to the states' 504 home repair loans and grants.
How Do Zero Interest Home Improvement Loans Work?
A county or state usually provides a zero-interest home improvement loan to help low-income homeowners who live there fix up their homes. These loan programs usually have strict eligibility requirements and dictate how the loan funds can be used to increase property value.
How Can I Get a Home Improvement Loan?
There are many ways to take out a home improvement loan. You can use equity from your house to take out a home equity line of credit or a home equity loan. You can apply for a low-interest FHA home improvement loan if you meet the criteria for one. If you qualify, you may be able to take advantage of any local county or state home repair loans or grants geared towards helping low-income families improve their homes.
Can I Use a No- or Low-Interest Home Improvement Loan for Anything?
If you take out a no- or low-interest home improvement loan from a county-run program designed to assist low-income homeowners, you will likely be limited in the scope of your home improvement projects. For example, some programs will not allow you to put in what the underwriters consider luxury items, like a swimming pool or hot tub. Most home improvement loan or grant programs are for projects like painting the exterior of your home, repairing broken windows or doors, or anything that needs repair, updates, or modernization.