When most people think about buying a home, they focus on getting approved for a mortgage and calculating monthly payments. A personal loan isn't typically the first tool that comes to mind. After all, most personal loans are capped at around $100,000 to $200,000—far below the cost of a home. But while a personal loan can't replace a mortgage, it can still play a meaningful role in the homebuying process. Financial experts suggest that with careful planning, personal loans can help fill in the gaps and even save money in the long run.
One of the most overlooked benefits of a personal loan is its ability to help improve your credit profile before applying for a mortgage. According to Robert Gabriel, CEO of Vosita, using a personal loan to consolidate high-interest debt can reduce your debt-to-income ratio and improve credit utilization. That, in turn, can boost your credit score. And the higher your credit score, the better your chances of securing a lower mortgage rate.
Personal loans can also come in handy when it's time to make a down payment. Sergio Aguinaga, founder of Michigan Houses For Cash, noted that buyers with reliable income but limited savings can use a personal loan to bridge the gap. Gabriel added that using a loan to reach a 20 percent down payment could help buyers avoid private mortgage insurance, which can add hundreds of dollars per month to a mortgage payment.
Another common obstacle for first-time buyers is closing costs, which typically range from 2 to 5 percent of the home's purchase price. That could mean an additional $6,000 to $15,000 on a $300,000 home. Gabriel said a personal loan can help cover those fees without dipping into an emergency fund. Aguinaga also pointed out that for buyers purchasing older or fixer-upper homes, a personal loan can help make immediate repairs—sometimes even making the difference in passing a home inspection.
Beyond essentials, personal loans can also be used to make cost-effective upgrades that add value to the property. Eli Pasternak of Liberty House Buying Group recommends borrowing for cosmetic improvements like painting and updating fixtures. He noted that spending $8,000 on updates could boost a home's value by as much as $20,000, making it a strategic move for buyers looking to build equity quickly.
Of course, personal loans add another monthly payment, so buyers should be careful to make sure it fits within their budget. But for the right person with a solid financial plan, a personal loan can be more than a quick fix—it can be a flexible tool that helps make homeownership possible.
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