Are you interested in home renovation loan options?
As a homeowner, there are different types of home renovation projects you can perform on your property. All of these are subsumed under the term home improvement projects.
Attached to these improvements are many expenses that the homeowner primarily bears.
Home Improvement Loan Options
Not many people have the luxury of funding their home improvement needs out of pocket. For these, they’ll have to consider funding options such as loans.
This article will discuss home improvement loans as a popular funding option you can leverage to execute your renovation projects.
What Home Improvement Project are you most interested in?
Before applying for home improvement loans, you should have a clear idea of what you want.
As stated earlier, many home fixes are classified as home improvement projects. Broad classifications include home additions, safety, interior design, and comfort upgrades.
There are many detailed actions involved for each of these classes of home improvements.
So, before we get into specifics about the type of home improvement loans available, let’s discuss the different categories of improvement projects mentioned.
As the name implies, home additions include any remodeling that consists of adding rooms to a home. It could also include the addition of a floor (whether partial or complete).
Another type of home addition includes converting an unused space.
You may decide to put a previously unutilized space to good use. An excellent example is converting your garage into a living area or room.
All of these actions qualify as home improvement projects for which you can get financing.
As always, safety is paramount in all aspects of human endeavor.
You might wish to do several things for home improvements with safety, including setting up a shelter for protection against hurricanes, earthquakes, tornadoes, and the like.
Apart from environmental hazards, you may decide to go for a fire system upgrade or repair an existing system. Of course, this will include installing all types of fire safety systems, including alarms, and sprinkler systems, among others.
The third type of safety measure you may wish to add to your home includes safety systems such as security windows, burglar alarms, and security doors.
So, do these safety improvements qualify for a home improvement loan? You’ll have to read on to find out such details.
Interior design includes many improvements that range from remodeling the back or front yard with porches, patios, decks, or landscaping.
You may also wish to have your walls painted or new wallpaper designs covering them. During painting, the ceiling area is also considered.
Another design you may wish to add to improve the appeal of your home’s interior includes installing your desired floor type.
There are many types of flooring that include carpets, wood paneling, linoleum, and tiling, to mention a few. All of these are considered part of home improvement.
Do you wish to add some upgrades to your kitchen? Quite many fixtures can be added, such as cabinetry, sinks, and countertops, among others.
Upgrades may include installing or changing bathtubs, cabinetry, and many other improvements for bathrooms.
Do you wish to have your doors and windows changed or fixed? You only need to look carefully at your needs to articulate what improvements to make.
Comfort upgrades are as crucial as those discussed above.
Here, installations and upgrades may be necessary for specific items or appliances such as heating, ventilation & conditioning (HVAC) units and soundproofing your home.
Other improvements you may wish to make include upgrading your bathrooms.
Other Types of Home Improvements
Home improvements may also include waterproofing and roofing, electrical work & plumbing, and complete renovation. So, what type of home improvement job do you need?
Will it qualify for a loan? How do you get access to these loans? These are salient points that need to be answered, as shown below.
Can I Avoid Home Improvement Loans by Taking the DIY Approach?
More often than not, many homeowners seek reliable alternatives to loans.
This is one of the reasons why DIY techniques have become increasingly popular over the years. First off, it’s possible to handle your home improvement projects if you have the proper knowledge.
If you don’t, you can still search and follow channels on YouTube and other video streaming sites that focus on niches such as home improvement.
By searching for your particular project, tons of search results come up for you to watch and learn. However, we must say that this isn’t 100% foolproof as you may make many mistakes.
DIY’ers with an appreciable technical knowledge shouldn’t find this option difficult.
However, more complex home improvement projects are best performed by licensed contractors. Remember, you don’t want to make costly mistakes that can cost you.
We recommend working with a licensed contractor to handle complex home improvement projects. You can limit yourself to basic or easy home improvements.
You only get to apply for loans considered essential to your needs by this action.
What Type of Loan is Best for Home Improvements?
As a homeowner, you need to know all the loan options you can benefit from.
Each of these serves vital functions that help complete your home improvement project. Apart from listing and discussing these loans, we’ve also provided information on the advantages and disadvantages of each type.
This information helps you choose what best serves your home improvement needs.
The different loan types include the FHA 203 (k) rehab loan, cash-out refinance, personal loan, home equity loan, home equity line of credit (HELOC), and credit card loans.
i. FHA 203 (k) Rehab Loan
FHA 203 (k) loans are insured by the Federal Housing Administration and are designed for emergency home improvement needs.
To be more specific, this type of loan is ideal for damaged properties that require immediate fixes. Does this loan type require a perfect credit rating? Not at all!
A homeowner with a less-than-ideal credit rating can access the FHA 203 (k) Rehab Loan.
Having access to this loan isn’t as difficult as many think. The Rehab Loan is considered ideal for many interested persons in terms of convenience.
Because your mortgage is combined with home improvement costs, you save significantly on repayments. Another benefit of the Rehab loan is that no down payment is required.
So, what are the pros and cons of applying for this type of home improvement loan? Let’s discuss!
A clear benefit of applying for the Rehab Loan is that the Federal Housing Administration ensures it.
What more? It has a low-interest rate that’s variable and has a no-income-limit requirement. This loan best serves damaged and older properties. It comes with adjustable or fixed rates too.
An eligible co-signer is allowed. In a nutshell, this type of home improvement loan helps improve the value of your home. If you plan on selling such property in the future, you should be able to attract a better bargain due to fixes carried out on the house.
It’s normal to expect downsides when applying for home improvement loans.
The FHA 203 (k) loan has several disadvantages that include needing the approval of the FHA, as well as presenting collateral. Repairs are limited to the primary residence, with no DIY intervention allowed.
You’ll be disappointed if you’re looking to include luxury upgrades to your home, such as swimming pools. Such provisions aren’t included.
Persons with credit scores of less than 500 will have to make a down payment of 3.5% of the requested loan.
ii. Cash-Out Refinance
Under this type of loan, obtaining financing for home repairs will require refinancing into a new mortgage loan with a more considerable amount than what’s being owed.
The logic here is to find an interest rate that’s significantly lower than your current or existing one while also being able to reset your loan at a lower interest rate than the existing mortgage.
Monies obtained from this home improvement loan type come directly from your home equity.
You can use this on all types of home improvement projects you have and even spend outside of that as there are no clear and strict rules regarding usage of this money outside of home improvement.
There are several benefits of cash-out refinance loans regarding benefits of cash-out refinance loans. They include being able to spend the monies on home improvement projects and other things outside of that.
The origin of cash-out is your home equity, and you stand to get a better deal by weighing different aspects of the loan before applying.
As a borrower, you get more control over your home improvement loan process. This is seen in your ability to lower your loan term and interest rate.
Another clear benefit is the single mortgage payment you have to make covering loan interest payments for existing and new loans.
The clock hand is reversed through cash-out refinancing as your loan term length is restarted.
How much loan will be sufficient for your home improvement loan needs? Why is this information important? Your new loan will have a large balance than your existing mortgage.
Also, more extensive home improvement loans tend to have higher closing costs. By knowing these different conditions, you can choose what loan type will better serve your needs.
iii. Personal Loan
Rather than borrow against your home, this option enables you to take out a personal loan without collateral.
This is also ideal for persons having limited loan options. A clear benefit of personal loans is that people can obtain them faster than others.
However, we must state the risks attached to personal loans.
These tend to have much higher interest rates than other loan options. One of the critical requirements for qualifying for personal loans is meeting the minimum credit score of 620.
With personal loans, there are no risks of foreclosures.
It comes with a variable or fixed rate and does not require home equity. Personal loans give you access to lump-sum payments with little to no questions asked.
Depending on your lender, an origination fee may not be required. Fast payment is another clear advantage of a personal loan.
A personal loan for home improvement is not without its disadvantages.
First off, tax is deducted from interest. If you’re looking for home improvement loans with long repayment terms, personal loans are not the answer, as they commonly have short repayment terms.
Higher loan rates and the absence of federal loan protections are other disadvantages.
iv. Home Equity Loan
Homeowners whose property has built up equity can borrow against the home’s value.
Your property’s worth is estimated to arrive at the equity value here. During estimation, the outstanding mortgage loan sum is deducted. In a nutshell, home equity loans are secured by your home.
With home equity loans, you have unrestricted use, plus you can make monthly payments at fixed rates.
In some cases, interests are tax-deductible while they’re not in some. You get a lump sum payment into your account, which helps you perform all repairs on your property.
Significant equity is required to benefit from home equity loans. Borrowers have to pay origination fees in addition to exposure to foreclosure risks.
It would be best if you had a strong credit score in addition to incurring application and upfront appraisal costs. Of course, borrowers must have reliable incomes.
v. Credit Card Loans
Credit card loans tend to be the quickest among the different types discussed. While this is true, there are many downsides, including paying higher interest rates.
Now, home upgrades can be pretty expensive. This makes loans from credit cards quite costly due to their high-interest rates.
You can readily access credit card loans for home improvement without problems. Also, it’s arguably the fastest of all the loan types discussed above.
The high-interest rates attached to credit card loans make them unfavorable to many homeowners. You can quickly become heavily indebted from this type of loan.
You can leverage these home improvement loan types to provide the necessary fixes to your property. It’s important to carefully assess each and make comparisons to arrive at one that best serves your needs.