Adding a room to your home can give you more living space and even boost the property’s value. One of the central questions to consider when planning an addition is how you’ll pay for the project.
Home addition loans can provide the funding you need to keep your project on track. You have several options to finance a home addition, including home equity loans and personal loans. We’ll walk you through what’s required for a home addition loan and where to find them.
In this guide:
- What are the requirements for a home addition loan?
- How to finance a home addition with no equity
- How to finance a home addition with equity
- How much does a home addition cost?
- FAQ
What are the requirements for a home addition loan?
The requirements for home addition loans can depend on the type of loan you’re seeking.
For instance, using a home equity loan or home equity line of credit (HELOC) to pay for an addition requires you to have a certain amount of equity in the property. Equity is the difference between what the home is worth and what you owe on the mortgage. Home equity lenders can also set minimum requirements for credit scores and income. These loans are considered secured because they’re backed by collateral—your home.
Personal loans and contractor financing are often unsecured. With these types of loans, the lender is more interested in your credit history and income than how much equity you have. Understanding the differences between different financing options can make it easier to choose the best one for your needs.
| Financing method | Equity required? |
| Home equity loan or line of credit | ✔️ |
| Personal loan | ❌ |
| Manufacturer/contractor financing | ❌ |
| Personal savings | ❌ |
How to finance a home addition with no equity
If you don’t qualify for a home equity loan or you’d rather not tap into your equity to finance an addition, you have several alternatives. You might apply for a personal loan, use contractor or manufacturer financing, or tap into your savings.
Here’s a comparison of each financing option, along with our recommendations for the best home improvement loans.
| Financing method without equity | Best for |
| Personal loan | Homeowners who want to borrow up to $100,000 |
| Manufacturer/contractor financing | Borrowers interested in zero-interest financing |
| Personal savings | Homeowners who’d rather avoid taking on debt to fund a home addition |
Personal loans
Personal loans allow you to borrow a lump sum of money and repay it over time, with interest. Depending on the lender, you might be able to borrow up to $100,000 with no collateral required. Rates are typically fixed, allowing for predictable monthly payments.
You could use a personal loan as needed to cover home addition expenses, including purchasing supplies or materials, paying deposits to contractors, or obtaining permits. Most personal loans are unsecured, meaning you don’t need collateral to obtain them.
Pros
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Allow for flexibility in how you spend the proceeds.
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You’re not obligated to leverage your home equity to qualify for a loan.
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Loan amounts can be generous, allowing you to fund larger-scale addition projects.
Cons
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Borrowers with lower credit scores will likely pay a higher interest rate for a personal loan.
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Lenders may charge origination fees, prepayment penalties, or other fees.
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You may need to take out multiple loans if the budget for your addition project exceeds $100,000.
Best home addition personal loans
Click the lender’s name in the table below to find out more about its loans for your home addition.
| Lender | Best for | Minimum credit score |
| SoFi | Good credit | 660 |
| Upgrade | Fair credit | 580 |
| Upstart | Thin (little to no) credit | None |
| LightStream | Excellent credit | Not disclosed |
SoFi – Best for good credit
5.0 out of 5 editorial rating
- Borrow up to $100,000
- Same-day funding available
- No fees
SoFi offers home improvement and renovation loans ranging from $5,000 to $100,000. These loans are unsecured, so you’re not tying up your equity. SoFi’s interest rates are fixed. Loan terms extend from 24 to 84 months, allowing you to choose a repayment pace that fits your budget.
You won’t pay fees for a SoFi home addition loan, and you can take advantage of multiple interest rate discounts. Keep in mind you’ll need good credit to qualify: SoFi prefers borrowers to have credit scores of 660 or higher.
- Rates: 8.99% – 25.81% APR (including rate discounts)
- Loan amounts: $5,000 – $100,000
- Repayment terms: 24 – 84 months
- Funding time: Same-day funding available
- Soft credit check: Check your rates without affecting your credit scores
- Minimum credit score: 660
Upgrade – Best for fair credit
4.9 out of 5 editorial rating
- Borrow up to $50,000
- Fixed interest rates
- Accepts joint applications
Upgrade offers personal loans of up to $50,000 that you can use to fund home improvements. Secured and unsecured loans are available, both of which offer fixed interest rates. If approved, you can take 24 to 84 months to pay back your loan. Upgrade charges an origination fee ranging from 1.85% to 9.99%.
It’s possible to get approved with a credit score as low as 580, which could make Upgrade attractive for people who are building or rebuilding credit history. Upgrade accepts joint loan applications, which sets it apart from other personal loan lenders. You can pay off your loan early with no prepayment penalty.
- Rates: 8.49% – 35.99% APR
- Loan amounts: $1,000 – $50,000
- Repayment terms: 24 – 84 months
- Funding time: Next day
- Soft credit check: Check your rates without affecting your credit scores
- Minimum credit score: 580
Upstart – Best for thin credit
4.8 out of 5 editorial rating
- Borrow up to $50,000
- Low fixed rates
- Fast funding
Upstart loans can give you up to $50,000 to fund home additions or other home improvements. You don’t need collateral to qualify, and there’s no minimum credit score requirement for borrowers in most states. This could make Upstart an excellent option if you have little to no credit history. If approved, you can choose between a 36-month or 60-month repayment term.
No prepayment penalty applies if you pay off your loan early, but Upstart charges an origination fee ranging from 0% to 12%. The lender will deduct the origination fee from the loan proceeds. Upstart doesn’t require a down payment or application fee for personal loans.
- Rates: 5.20% – 35.99% APR
- Loan amounts: $1,000 – $50,000
- Repayment terms: 36 or 60 months
- Funding time: Next business day
- Soft credit check: Check your rates without affecting your credit scores
- Minimum credit score: None in most states
LightStream – Best for excellent credit
4.8 out of 5 editorial rating
- Borrow up to $100,000 with no collateral required
- Same-day funding available
- Accepts joint loans
LightStream offers favorable loan terms for borrowers with excellent credit. It’s possible to borrow up to $100,000 for home improvements and take anywhere from 24 to 144 months to pay it back. LightStream charges no fees, including origination fees and prepayment penalties.
LightStream doesn’t disclose the minimum credit score you’ll need to qualify, but generally, you’ll need good to excellent credit (at least 660) for approval. If approved, it’s possible to get your loan funds as soon as the same day. The lender accepts joint loan applications if you want to apply with a spouse or another borrower.
- Rates: 7.99% – 25.49% APR
- Loan amounts: $5,000 – $100,000
- Repayment terms: 24 – 144 months
- Funding time: Same-day
- Soft credit check: Not available
- Minimum credit score: Not disclosed, but must be good (660+)
These options represent our picks for the best personal loans for funding a home addition. It’s wise to shop around and compare different lenders.
When considering personal loans, look at the minimum and maximum loan amounts and repayment terms the lender offers. Weigh the interest rates you might pay, any fees the lender charges, and how soon you can access loan funds once approved.
From savings
Using personal savings to fund a home addition is an excellent way to avoid taking on debt. You can pay yourself back over time without interest or fees. And you don’t have to worry about a low credit score being a barrier to qualifying for a loan.
Pros
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Won’t add any new debt payments to your budget.
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Draw down savings as needed to cover home improvement expenses.
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No interest or fees to pay to a lender, which can save you money.
Cons
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Wiping out your savings for a home addition could be risky if you don’t have a cash cushion to rely on in an emergency.
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Savings alone might not be enough to fund a bigger home addition project.
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Some homeowners may not have savings to earmark for home improvements.
Many homeowners choose to set up a savings account just for home improvements. If that’s something you’re interested in, you might consider opening a high-yield savings account at an online bank. High-yield accounts can offer the best rates while charging the lowest fees.
You could also use a certificate of deposit (CD) account to save if you know you won’t need the money for a certain period. Aside from savings or CD accounts, you might also consider borrowing money from a retirement savings account. For example, you can take a loan from your IRA to pay for a home addition.
CFP® Erin Kinkade advises: “Note that an IRA loan is a loan you take from yourself, and you must repay it with interest. (Your employer sets the interest rate.) Before you do this, consider the drawbacks. For one, you’re shrinking your retirement nest egg. You would owe the balance in full if you leave your job for any reason or face a tax bill for the withdrawal. For many reasons, it’s often better to consider tapping a savings account or CD account instead.”
Manufacturer financing
Manufacturer financing and contractor financing are two possibilities for financing a home addition. With these options, you might borrow from the builder or through a home improvement center to cover any necessary expenses.
These types of home addition loans can be attractive because they’re often easier to qualify for than a personal loan. However, borrowers with fair or poor credit could pay much higher interest rates.
Pros
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May be easier to qualify for than a personal loan.
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Zero-interest financing might be available, allowing you time to pay off the loan without interest charges.
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Typically no origination fee or prepayment penalty for these types of loans.
Cons
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Interest rates can be much higher, making these loans a more expensive way to borrow.
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If you don’t pay off your zero-interest financing balance before the promotional period ends, the accrued interest is tacked on to what you owe.
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You might be able to borrow more with a personal loan.
If you’re hiring contractors to complete a home addition, you can ask them what financing options they might offer, if any. GreenSky, for example, works with a number of home improvement companies and contractors to extend financing to its customers.
You can also look into financing options through home improvement centers. For example, Home Depot and Lowe’s offer in-store financing options to customers. Smaller, local home improvement stores in your area might also offer in-store credit programs.
How to finance a home addition with equity
If you’ve accumulated equity in your home, options to access it for a home addition include a revolving line of credit, a lump-sum loan, or a cash withdrawal while refinancing your mortgage (aka a cash-out refinance).
Erin Kinkade, CFP®, suggests considering the housing market where you live when deciding whether to use home equity to finance your home addition: “Is your current local housing market stable? Does it decline with economic conditions, or is it an area that historically has seen housing increase despite an economic or market downturn?
“If it’s an area where housing prices decline along with the economic conditions, I would recommend having no less than 30% equity in the home or choosing an unsecured loan in an effort to protect against foreclosure.”
| Financing method with equity | Best for |
| Home equity line of credit | Homeowners who need flexibility |
| Home equity loan | Borrowers looking for low, fixed rates |
| Cash-out refinance | Homeowners who want to restructure their mortgage |
Home equity line of credit (HELOC)
A home equity line of credit is a revolving credit line secured by your equity. You can take money from your credit line as needed during the initial draw period and repay it during the repayment term. Draw periods can last five to 10 years, followed by a 10- to 30-year repayment period.
A HELOC may be preferable if you’re unsure how much you’ll need to pay for a home addition. HELOC rates are often variable, but certain lenders may offer fixed-rate options. The maximum loan amount varies, but most lenders allow you to borrow up to 85% of your equity. (See how to calculate your home equity.)
Pros
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Only pay interest on the part of the credit line you use.
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Choosing a fixed-rate option can make it easier to budget for repayment.
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Depending on the lender, you might be able to make withdrawals via check, debit card, or electronic funds transfer.
Cons
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A variable-rate HELOC could be risky if rates rise during the loan term.
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Lenders may charge annual fees or other fees.
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Interest-only payments are often required during the draw period.
Options
Numerous lenders offer home equity lines of credit. You might start with your current mortgage lender to see what’s available before branching out your search to compare HELOC rates.
When shopping for HELOC options, consider how much of your equity you’ll be able to borrow and whether you’re paying a fixed or variable rate. Variable rates can increase or decrease over time.
Also, check for fees the lender might charge and the appraisal requirements. Some lenders might allow for a drive-by or virtual appraisal, but others require an in-person appraisal.
Home equity loan
Home equity loans also allow you to borrow against your equity, but you get a lump sum rather than a revolving credit line. The amount you can borrow is often the same as a HELOC, with lenders capping it at 80% to 85% of your equity.
Interest rates are often fixed for home equity loans, and repayment terms can last up to 30 years. Home equity loans can have closing costs, just the same as a purchase mortgage. However, your lender might cover the costs or allow you to roll them into the loan.
Pros
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Can offer low, fixed interest rates that won’t change over time.
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Longer repayment periods can translate to lower monthly payments.
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Interest may be tax-deductible when used solely to fund home improvements if you choose to itemize your deductions.
Cons
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Pay interest on the entire loan amount, even if you don’t use all of it.
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A longer repayment term can mean paying more interest in total.
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Two mortgage payments can add strain to your budget.
If you’re interested in home equity loans, you might check rates and terms with your current lender first, and look for alternatives online. Online lenders offer some of the best home equity loans and feature a combination of low rates and generous loan limits.
As with HELOCs, it’s important to shop around. The best home equity loan for you is the one that allows you to borrow the amount you need to cover a home addition, with repayment terms that align with your budget.
Cash-out refinance
A cash-out refinance is a way to withdraw equity from your home while changing the terms of your current mortgage. A cash-out refinance replaces your mortgage with a new home loan and allows you to walk away with cash at closing.
Your new mortgage includes the remaining amount due on the old loan, along with the amount of equity you withdraw in cash. Instead of having two loan payments to make, as you would with a HELOC or home equity loan, you’d just have one.
Pros
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Puts cash in your hand without adding a monthly payment to your budget.
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Depending on which type of loan you get, you may be able to withdraw up to 100% of your equity in cash.
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Cash-out refinance loan rates are often fixed, so you don’t need to worry about rates or payments increasing.
Cons
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You’ll have a new, larger mortgage payment.
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Your lender may charge origination fees or closing costs, which is often deducted from the cash you get.
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Reduces your home equity.
The same lenders that offer home equity loans or HELOCs may also offer cash-out refinancing. When you’re shopping for the best cash-out refinance options, consider how much cash you need to withdraw to complete a home addition.
Taking out all your equity in cash might seem wise, especially if you lock in a low interest rate. But this can leave you with more to repay, and decreasing your equity could put you at risk of owing more than your home is worth if the value drops.
How much does a home addition cost?
The average cost of a home addition as of October 2023 is $49,947, according to HomeAdvisor. A typical range is between $22,212 and $81,457, but some projects could pass the $100,000 mark.
Here are other examples with average costs of the project:
| Type of addition | Average cost |
| Bedroom | $62,500 – $100,000 |
| Bathroom | $35,000 – $90,000 |
| Kitchen | $20,000 – $90,000 |
| Family or living room | $20,000 – $45,000 |
| Attic | $40,000 |
| Laundry room | $8,070 |
| Dining room | $20,000 – $45,000 |
| Mudroom | $8,000 – $16,000 |
Average costs from HomeAdvisor.
Erin Kinkade, CFP®, shared her perspective on when it might make sense to build an addition to your home: “…(As of November 2023,) we are in a high-interest-rate environment and a housing shortage. While interest rates are high, many people opt not to sell or buy, fearing they’ll get stuck with a high interest payment either way.
“Examples of when it might make sense to make additions to the home would be:
- If somebody wants to stay in the home but needs to make changes for multiple reasons (such as health)
- To make it more retirement-friendly (adding leisure space)
- Wanting to rent out the home but need to make additions or improvements to make the home more marketable (because more rentals are coming on the market, making the rental space more competitive)”
The cost of a home addition can depend on several factors, including the type of addition, the style, the materials, and where you live.
The DIY approach might save money on labor costs, but a large-scale addition might not be a project you could handle yourself. In that case, you’ll also need to budget for hiring contractors, and additional expenses may be involved if you need to secure permits for construction.
Taking time to plan your budget can help you avoid getting blindsided by unexpected costs. It can also help you decide which home improvement financing option makes the most sense.
FAQ
What credit score do I need for a home improvement loan?
The minimum credit score you’ll need for a home improvement loan can vary by lender, and some lenders have no minimum requirement. Others may prefer borrowers to have a score of 660 or better to get approved and secure the lowest interest rates.
What is the typical interest rate for a home improvement loan?
A typical interest rate for a home improvement loan can be anywhere from 5% to 35%. Your exact rate will hinge on your credit history and other qualifications. Getting a lower rate on a home addition loan is ideal because it makes borrowing less expensive overall. A lower rate can also result in lower monthly payments.
Can I deduct the interest on my home improvement loan?
Interest on a home equity loan or HELOC may be tax-deductible if you meet certain conditions. The IRS only allows a deduction when the proceeds of the loan are used to “buy, build, or substantially improve” the home the loan secures, and you itemize your deductions. Personal loan interest is never tax-deductible.
What happens if I can’t repay the loan?
If you fail to repay a home improvement loan secured by your equity, your lender could initiate foreclosure proceedings against you. That could lead to the loss of the home. Failing to repay a personal loan or contractor financing may land you in small claims court if the lender decides to sue.
Is it better to take out a personal loan or use home equity for a home improvement project?
Whether it’s better to take out a personal loan or use home equity for home improvements can depend on how much you need to borrow, how much equity you’ve accumulated, and how comfortable you are leveraging it for a loan. Personal loans can carry fewer risks, but you might be able to borrow more by using your equity as collateral.
Are any grants available for home improvements?
The Department of Agriculture sponsors the Section 504 loan program, which provides loans for home repairs or improvements to eligible borrowers. Loans are restricted to homeowners 62 and older with low income who can’t qualify for funding from another source.
How long does the approval process take for these loans?
The approval process for personal loans is often much faster than home equity loans or HELOCs. You might be able to get approved the same day, depending on the lender. Approval for a home equity loan or HELOC, on the other hand, may take several weeks.
How do I determine how much financing I’ll need for my project?
Working out a detailed budget can help you decide how much financing you’ll need for a home addition. When creating your budget, factor in the cost of supplies and materials, labor if you’re hiring contractors, and any necessary permits. You may also want to add in a buffer of 10% extra to cover unexpected costs.