Introducing home improvement loans in Texas

Introducing home improvement loans in Texas

If everything’s bigger in Texas, the latest trends in home improvement projects in the state’s major cities definitely back that up. “Luxury” is the name of the game when it comes to the most popular home improvement projects in the state—think swanky master suite additions, rambling deck projects, high-end stone veneer siding, and upscale kitchen overhauls.

And of course, all those outsized home improvement projects come with a Texas-sized price tag—and you need to know your options so you can cover it.

Got a home improvement project in mind this year? This guide will explain your financing options and help you choose the one that’s best for you (and your budget). And we’ll do it all in less than 10 minutes.

When should I apply for a home improvement loan?

Here’s the most important fact to remember: A home improvement loan can drive up the cost of your project. You aren’t just paying the actual costs of the materials and labor you need, you’re paying to use the lender’s money. And that can add 10%,15% or even more, depending on your interest rate and other fees.

So before you borrow money for that custom shower enclosure and high-tech, thermostatic, multi-spray shower system, consider whether the extra financing costs are really worth it to you.

Remember, patience is a virtue, and it pays off big time when it comes to paying for your “wish list” home improvement projects.

On the other hand, if you happen to live in Tornado Alley and a storm drives a branch through your roof that lays waste to your bathroom, you can’t exactly sit around and wait until you can save up for the repairs.

And even if you have good homeowner’s insurance coverage, you may be strapped for cash to cover your deductible—or any upgrades you want to have done while the contractor is fixing the damage.

Home improvement loans are best for urgently needed projects and projects that add real value to your home when you don’t have time to save up and pay cash.

What are my options for home improvement loans in Texas?

Texas has some interesting state laws that affect your borrowing when it comes to home equity loans, and some location-specific government programs that may apply if you meet certain requirements (where you live in Texas, your income, type of project, and overall cost). We’ll cover them all in detail.

But first, here’s a list of all your available options:

  • A personal home improvement loan.
  • A home improvement credit card.
  • A home equity loan.
  • A USDA rural development loan.

What is a personal home improvement loan?

In a nutshell, a personal home improvement loan is a “signature” loan—you don’t need any home equity or other collateral to secure your loan.

When you need to borrow between $2,000 and $35,000 (up to $40,000 in some areas), and you need it right away, personal home improvement loans may be a good place to start.

Here’s what separates personal home improvement loans from other types of home improvement financing—

  • Simple online application process and quick approval time. You’ll usually get an answer in under 24 hours (remember how slow and time-consuming the approval process was for your home mortgage? Yeah, it’s nothing like that).
  • Fast funding—you’ll have your money usually in a day or two, although in some cases, it may take up to a week.
  • Shorter loan terms of between 3 and 7 years, so you can get your monthly payments in line with your budget.
  • Fixed interest rates, usually between 10% and 20% (although yours may be a bit higher or a bit lower, depending on your creditworthiness). With interest rates changing several times a year, there’s security in knowing exactly what you’ll pay to finance your loan. Which leads me to…
  • Fixed monthly payments over the entire life of your loan. Once you sign the contract, your payments never change, so you can budget responsibly for your home renovation project.

So when should you choose a personal home improvement loan? The short answer is when you need money fast and you don’t have much equity in your home—or you don’t want to put your home at risk for a remodel project. Because the loan is unsecured, the worst thing that can happen if you don’t make your payments on time is a ding on your credit score.

What is a home improvement credit card?

A home improvement credit card functions like any other major credit card—you buy what you need with plastic.

They’re also as easy to get as any other major credit card; just fill out an online application and wait for your card to arrive in the mail. No application fees, no hassle, and if you’re lucky, you’ll find a lender offering a 0% introductory interest rate for the first year or so.

That’s actually the best reason to consider a home improvement credit card—if you can pay off your balance during that introductory term, you won’t pay any finance charges. In that respect, credit cards may be the cheapest option, but only if you pay them off quickly.

If you don’t, you’re looking at interest rates in the neighborhood of 15% to 20% or more, easily the highest of all your home improvement finance options. And once the higher interest rate kicks in, your balance goes up each month with finance charges, which also drives up your monthly payments. So if you need fixed monthly payments to balance your budget, a credit card may not be your best option.

And credit cards are notorious for mission creep. Here’s what I mean: When you get a home improvement loan, you get exactly the amount you applied for, the exact amount you need to complete your project.

A credit card, on the other hand, lets you spend up to your credit limit, which can be considerably more than what you actually need to get the work done. It can be hard to resist the temptation to overspend.

One more thing to keep in mind about home improvement credit cards—some contractors in Texas add a 5% surcharge to credit card transactions. If you use a home improvement loan, you’ll pay your contractor with a personal check straight and avoid that hazard.

When is a home improvement credit card your best bet? When you have an urgent project with a relatively small budget (maybe $2,500 or less, whatever you can comfortably pay off during your introductory 0% interest term).

What is a home equity loan?

As you’d guess from the name, a home equity loan lets you borrow against the amount of equity you have in your property. They generally have the lowest interest rates of all your home improvement loan options—which can save you hundreds or even thousands over the life of your loan.

But the reason for that is that the bank secures the loan with a claim on your home. Simply put, fail to pay, and the bank can foreclose and take your home.

Texas also has rules about home equity loans that affect how much you can borrow and if you can even apply for one.

Basically, the law says you cannot borrow more than 80% of the value of your home, less any outstanding mortgages.

For example, if your home is valued at $400,000, and you owe $350,000 on your mortgage, you have $50,000 in home equity. But under Texas law, you wouldn’t be able to borrow against it at all!

Here’s why—if you must leave 20% equity in your home at all times, you would need $80,000 in equity (20% of $400,000) before you could even apply for a home equity loan.

In the same example, if you owed $300,000 on your mortgage instead, you would only be able to borrow a maximum of $20,000. And you can only have one home equity loan at a time, regardless of the amount of equity you have.

Now, assuming you have enough equity to even apply for a loan, there are other things to consider before you do:

  • Remember that clunky mortgage approval process we talked about earlier? The home equity loan process is pretty much just like that—with all the paperwork, fees (including a new appraisal and loan origination fees), and long, drawn-out closing time you had the first time around. You could easily wait six weeks for your cash.
  • You may have either a fixed or variable interest rate, and if you get the latter, your payments could change radically from year to year.
  • On the other hand, your interest rates will likely be much lower than rates for a personal loan or home improvement credit card—and in some cases, you can deduct interest payments from your income tax.
  • Want to pay the loan off early? You can, but it will probably cost you a bunch in prepayment penalties.
  • And you’ll be paying for your home remodel for a very long time. Most home equity loans have terms of either 15 or 30 years. You may really love that new shower, but will you really love it so much when you’re still making payments on it 20 years later?

When should you use a home equity loan for your project? When you have a lot of equity in your home, you need a larger amount of cash, and you can wait a month or more to start the work.

What are USDA home improvement loans?

The Texas Section 504 home repair program may be an option if you have very low income and you need the money to fix a health or safety hazard. They’re only available in amounts of $7,500 to $20,000. You don’t need any equity in your home, and if you are age 62 or over, you may even qualify for a grant for all or part of the repair amount.

You pay just 1% interest on the money you borrow and the term is fixed at 20 years.

The program is only available to homeowners in certain rural parts of Texas; you can find out if your home is eligible here.

Even if you meet all the requirements to qualify for a loan, you may still be unable to get one, however, because funding is limited—if the money is gone when you apply, you’re out of luck.

How do I apply for a home improvement loan in Texas?

If you’ve ruled out a home equity loan and decided on a personal home improvement loan or credit card, Hearth can help. In just 60 seconds, you can complete our secure online process and we’ll help you see your rates and find savings. It doesn’t cost you a thing and it won’t affect your credit score.

Once you get your options for a personal home improvement loan or home improvement credit card, choose the one that works best for you, and complete the approval process (you’ll usually need to submit ID and proof of income).

In just a matter of days, you’ll have the money you need to get the work done.

Now that you know everything you need to know about your home improvement financing options in Texas, let Hearth help you get your project started.