One of the largest investments you can make is buying a home, so properly maintaining it is essential for keeping or improving its value. Sometimes these types of improvement projects are planned. Other times they aren't. What are your options if you want to make an upgrade but don't have the cash in hand? A home improvement loan is an excellent way to get your project started.
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These loans can be used to increase the value of a home or for those who just need some updates or repairs. A home improvement loan can cover things from changing out the carpet to hardwood flooring, building a garage, replacing a leaky roof, or adding insulation.
What Is a Home Improvement Loan
These personal loans are unsecured and can be made without providing collateral. Some financing options ask you to provide your home title or some other form of a pledge. These types of loans are not a mortgage or a reverse mortgage, so you will not put your house at risk. Related: Recast A Mortgage Home improvement loans are paid back in small regular installments depending on the amount of the loan. Most of these are paid back within three to five years. Just like other loans, you can still accrue penalties such as late fees. The amount you will be allowed to borrow will depend on your credit history and income. Improvement loans can range from $1,000 to upwards of $50,000.Types of Home Renovation Loans
There are many options when it comes to ways to pay for a home improvement. There are plenty of calculators out there that can help you identify the option that saves you the most money.Home Improvement Loans
Home improvement loans typically have shorter repayment timelines and fewer fees than some of the other options. These loans are best used for small or medium-sized projects such as window replacements or a bathroom makeover. There are downsides to these loans such as they are unsecured. While they don't need collateral, they do have higher rates. There are sometimes extra fees associated with these loans, such as an application fee or late payments.Home Equity Loans
Home Equity Loans are another way to invest in your home without refinancing. These types of loans give you a single lump sum of money. A home equity loan is best when someone already has a low-interest rate on their mortgage.
Home Equity Lines of Credit
Commonly referred to as HELOC, it is a secured loan backed by your home's value. Homeowners can qualify for lower interest rates with these credit lines than if they were to take out an unsecured personal loan. A HELOC is a revolving credit. These are an excellent option for ongoing or a lengthy home renovation project. Related: How to refinance with Bad Credit.Credit Cards
If the improvement you are hoping to make is a smaller one, upgrading kitchen fixtures using a credit card might be an option. Some credit cards offer interest-free for the first few months. Credit card companies will often offer you a chance to pay off the full amount without paying interest. Some cards even offer cash-back options, meaning you can earn offers from spending the money on your renovations. There are some risks if you make larger home improvement purchases on a credit card. If you cannot pay it off in full before the introductory rates expire, they usually come with high-interest rates. Those rates run higher than most other loan options.Government Loans
If you are able to qualify for a government loan, it's possible to save some money when it comes to interest. With a HUD Title 1 Property Improvement Loan, you may be able to borrow upwards of $25,000 without risking any of your home's equity. If you recently purchased your home and need some work done to it, this is a great option.Mortgage Refinancing
By refinancing your current mortgage, you replace your old one with a new loan, including a fancy new interest rate. If there is a difference between the old and new loan, you get to keep the difference. Utilizing that money from a cash-out to make home improvements is a great way to improve the value of your house. Be careful, though. If your refinance only offers a lower interest rate without the option to cash-out, you won't be able to receive the funds. Other fees go along with this type of loan, such as paying for appraisals, taxes, and additional closing-related costs. Related: What you should know about financing with a HARP mortgage.How to Use Your Home Improvement Loan
Most people apply for home improvement loans for home-related expenses and are considered to be a personal loan. However, the money can be used for whatever you like, and you can use it as you see fit. This can mean replacing carpet or utilizing the extra to pay off credit debt or pay down your mortgage.
These loans can be used to increase the value of a home or for those who just need some updates or repairs. A home improvement loan can cover things from changing out the carpet to hardwood flooring, building a garage, replacing a leaky roof, or adding insulation.
How to Qualify for a Home Improvement Loan
There are some considerations that help lenders to determine if you qualify. Things like income, outstanding debt, and credit score, and history are all factors that can determine if and how much you can qualify for a home improvement loan. Some things you may be asked:- Personal information such as an address or phone number
- Annual income
- Whether you've taken out loans in the past three months
- How much money you have in savings and investment accounts
- How much you want to borrow
