The most popular way to finance a large home improvement project is with a home equity loan or line of credit or with an FHA 203(k) loan. The most popular way to finance smaller projects is with cash: either 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. People who aren't able to access any of these traditional sources, though, may qualify for a different and extremely affordable type of home remodeling loan.

Low-income homeowners may be eligible for subsidized funding or loans to use for home remodeling or needed repairs.

This loan flies under the radar and is right in your own backyard. It 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.

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.

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 eligiblity 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 the larger scale, counties are interested in maintaining the value of housing stock. When housing stock declines, 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.

Key Takeaways

  • These loans are intended to rehabilitate structures or correct violations, not purchase a new property or finance construction. 
  • 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.

Limitations and Requirements

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. One typical amount (King County, Washington) is $64,400 for a family of four.
  • 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.

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 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.

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.

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 programs for home repair loans and grants.