Home Repair Loans: What Each Type Costs and Who Can Get Them
How home repair loans work and what sets them apart
A home repair loan is money you borrow to fix or improve your house, and you repay it over time with interest. Unlike grants, which you do not repay, loans let you borrow larger amounts — often $5,000 to $50,000 or more — but you pay back every dollar plus a fee for borrowing it. The type of loan you can get depends on whether you own your home outright, have a mortgage, and how much equity you have built up.
The main trade-off is simple: loans give you access to cash now, but they cost more the longer you take to repay them. A $10,000 repair financed over five years costs more in interest than the same repair financed over two years. You also have to may have access to based on your credit score, income, and the value of your home.
Home repair loans come in several forms — secured loans that use your home as collateral, unsecured personal loans that do not, government-backed programs for low-income homeowners, and contractor financing that the repair company arranges. Each has different interest rates, repayment terms, and who qualifies.
Key Takeaways
- Home equity loans and lines of credit use your home as collateral and typically have lower interest rates than unsecured loans, but put your home at risk if you cannot repay.
- Personal loans do not require collateral and have fixed monthly payments, but charge higher interest rates and work best for smaller repairs under $15,000.
- FHA Title I loans are designed for homeowners with lower incomes and offer fixed rates and terms, though the application process is longer than a personal loan.
- Contractor financing through the repair company is fast but often the most expensive option, with interest rates that can exceed 20 percent.
- Your credit score, home equity, and the size of the repair determine which loans you can actually get and what rate you will pay.
Home equity loans and lines of credit — lower rates, but your home is collateral
A home equity loan lets you borrow against the value you have built up in your house. If your home is worth $300,000 and you owe $200,000 on your mortgage, you have $100,000 in equity. Most lenders will let you borrow 80 to 90 percent of that equity, so in this example you could borrow up to $80,000 to $90,000. You receive the money in one lump sum and repay it over a fixed period — usually 5 to 15 years — with a fixed interest rate.
A home equity line of credit (HELOC) works differently. Instead of getting all the money at once, you receive a credit line you can draw from as needed, like a credit card. You pay interest only on what you actually borrow. HELOCs usually have variable interest rates that change over time, and after an initial draw period (often 10 years), you must start repaying the principal.
Both options have lower interest rates than unsecured loans — often 2 to 8 percentage points lower — because the lender can take your home if you do not pay. This makes them attractive for large repairs, but the risk is real. If you fall behind on payments, the lender can foreclose. You also need significant equity in your home to may have access to, which means you must have paid down your mortgage substantially or bought when prices were lower.
Personal loans — no collateral, but higher interest rates
An unsecured personal loan is money a bank or online lender gives you based on your credit score and income, not on your home. You do not pledge any collateral, so the lender cannot take your house if you default. This makes personal loans less risky for you, but riskier for the lender, so they charge higher interest rates — typically 6 to 36 percent depending on your credit.
Personal loans come with a fixed monthly payment and a set repayment term, usually 2 to 7 years. You know exactly what you owe each month and when the loan ends. Most lenders cap personal loans at $50,000, though some go higher, and many require a minimum credit score of 620 to 650.
Personal loans work best for repairs under $15,000 when you have decent credit (a score of 700 or higher). The application is fast — often approved within days — and you can use the money for any repair without the lender inspecting the work. The downside is the interest cost. A $10,000 personal loan at 15 percent interest over five years costs you about $1,900 in interest alone.
FHA Title I loans — government-backed loans for homeowners with lower incomes
The FHA Title I Home Repair Loan is a federal program designed for homeowners who do not have enough equity for a home equity loan or cannot may have access to for a personal loan. The Federal Housing Administration insures the loan, which means the lender is protected if you default, so they are willing to lend to people with lower credit scores or less income documentation.
Title I loans max out at $25,000 for a single-family home and carry fixed interest rates set by the lender (not the government). Repayment terms run 5 to 20 years depending on the loan size. You can borrow for almost any repair — roof, foundation, plumbing, electrical, weatherization — as long as it improves the home's value or safety.
The application takes longer than a personal loan, typically 3 to 6 weeks, because the lender must verify the work will actually happen and that you own the home. You will need proof of ownership, a description of the repairs, and often a contractor estimate. The advantage is that you do not need a high credit score or large equity, and the interest rate is usually lower than a personal loan. The disadvantage is the slower timeline and the fact that the lender may require the work to be done by a licensed contractor.
Contractor financing — fast but expensive
Many contractors and home improvement companies offer financing directly through their business or through a third-party lender they partner with. You sign the financing agreement at the same time you sign the repair contract, and the money goes straight to the contractor. This is the fastest option — sometimes approved the same day — and requires minimal paperwork.
Contractor financing is also the most expensive. Interest rates often run 15 to 25 percent or higher, and the terms are usually short — 3 to 5 years. A $5,000 roof repair financed at 20 percent over three years costs you about $1,600 in interest. Some contractor financing is actually a credit card with a promotional period (0 percent for 12 months, for example), which can work if you can pay off the balance before the rate jumps.
This option makes sense only if you need the repair done immediately and have no other way to pay. The speed comes at a real cost. Before you sign, ask the contractor what the total amount you will pay is, including all interest and fees, so you can compare it to a personal loan or home equity loan from a bank.
Comparing interest rates and total costs across loan types
| Loan Type | Typical Interest Rate | Loan Amount | Repayment Term | Speed to Funding | Collateral Required |
|---|---|---|---|---|---|
| Home Equity Loan | 4–8% | $10,000–$100,000+ | 5–15 years | 1–2 weeks | Home equity |
| HELOC | 6–10% (variable) | $10,000–$100,000+ | 10-year draw, then 10–20 years repay | 1–2 weeks | Home equity |
| Personal Loan | 6–36% | $1,000–$50,000 | 2–7 years | 1–5 days | None |
| FHA Title I | 6–12% | Up to $25,000 | 5–20 years | 3–6 weeks | None (home ownership required) |
| Contractor Financing | 15–25%+ | Varies | 3–5 years | Same day to 1 week | None |
To see the real cost difference, consider a $10,000 roof repair. A home equity loan at 6 percent over 10 years costs about $3,300 in interest. A personal loan at 18 percent over 5 years costs about $4,900 in interest. Contractor financing at 20 percent over 3 years costs about $3,200 in interest, but you pay it back faster. The cheapest option is not always the best if it forces you into a payment you cannot afford.
When you are comparing loans, look at the total amount you will pay back, not just the interest rate. A lower rate over a longer term can cost more than a higher rate over a shorter term. Use an online loan calculator to plug in the rate, amount, and term for each option you are considering, then compare the monthly payment and total interest cost side by side.
How to choose the right loan for your situation
Start by knowing what you have. If you own your home outright or have paid down your mortgage significantly, a home equity loan or HELOC will give you the lowest interest rate. If you have less than 20 percent equity, a personal loan or FHA Title I loan is more realistic.
Next, consider your credit score. If it is 700 or higher, you can shop personal loans from banks and online lenders and compare rates in minutes. If it is lower, FHA Title I loans are designed for you, though the application takes longer. If your score is very low (below 580), contractor financing may be your only fast option, but calculate the total cost before you commit.
Finally, match the loan term to what you can afford monthly. A longer term means a smaller payment but more interest paid overall. A $10,000 loan at 10 percent costs $211 per month over 5 years or $132 per month over 10 years. If you can only afford $132, the 10-year loan is the right choice even though you pay more interest, because you cannot afford the alternative.
Frequently Asked Questions
Can I get a home repair loan if I have bad credit?
Yes. FHA Title I loans are designed for borrowers with lower credit scores and do not require a minimum score. Personal loans from online lenders often work with scores as low as 580–620, though the interest rate will be higher. Contractor financing is also available to people with poor credit, but it is the most expensive option.
What if I do not have enough equity for a home equity loan?
A personal loan or FHA Title I loan are your main options. Personal loans work if your credit is decent and the repair is under $15,000. FHA Title I loans go up to $25,000 and work for lower credit scores, but take 3–6 weeks to process. Contractor financing is fastest but most expensive.
Should I use a HELOC or a home equity loan?
Use a home equity loan if you know the exact repair cost and want a fixed payment. Use a HELOC if you might need money in stages (foundation work now, roof later) or want to pay interest only on what you borrow. HELOCs have variable rates, so your payment can go up if interest rates rise.
What happens if I cannot repay a home repair loan?
With a home equity loan or HELOC, the lender can foreclose on your home if you fall behind. With a personal loan or FHA Title I loan, the lender will report the missed payments to credit bureaus and may sue you, but cannot take your house. Contractor financing works the same way as a personal loan.
Can I pay off a home repair loan early without a penalty?
Most personal loans and FHA Title I loans have no prepayment penalty, so you can pay them off early and save on interest. Some home equity loans and HELOCs do charge a penalty for early repayment, so ask before you sign. Contractor financing terms vary — read the agreement carefully.