Home Improvement Loans and How to Get One
If you want to do a few upgrades to your home, you need liquid capital. If you don’t have the money in savings, you will likely have to resort to a home improvement loan.
As you upgrade your home, well-calculated borrowing can pay off in the long run. The key is making sure you can afford the improvements you are doing before taking out a loan.
Why Improve a Home?
A home is an important part of your life. It’s where you kick back and relax, and it should be a long-term roof over your head. That said, your home is subject to wear and tear, so things are bound to break and need to be fixed. The home also becomes outdated over time and require an update to hold its value for the long term.
A stylish home renovated to the latest standards is beneficial, and you make money off it too. Not will this build equity, but it also makes your home more in demand. The latter comes in handy should you choose to rent your home long-term or just throw it on Airbnb for a few weeks while you’re on vacation.
The downside is that major renovations can be costly. unless you planned for these updates years in advance and saved for them, it would be impossible to undertake such a colossal project without renovation loan. Fortunately, there are plenty of lenders prepared to offer you a home improvement loan.
Use the loan comparison tool at Financer.com to compare lenders offering loans for home renovations.
You can use a home improvement loan to:
- Build an addition.
- Update a bathroom.
- Repair plumbing.
- Upgrade your lawn.
- Make electrical upgrades or repairs.
Unsecured Personal Loans for Home Improvement
Generally, home improvement loans are unsecured, meaning there is no collateral protecting the bank should you default. A loan with no collateral has a major benefit: You won’t risk having an asset repossessed if you default. But with this sometimes comes a higher interest rate.
Make sure you read through all the terms before just settling on an unsecured home improvement loan just because it looks good on the surface. Dig into those terms and check for any red flags: prepayment penalties, late charges, balloon payments, etc. Thorough research is your only protection against signing up for a years-long loan you’ll regret a month later.
Home Improvement Loan Requirements
A lender will most likely want to know the nature and scope of the project. You need to have at least one preferred estimate, but many lenders will require two or three estimates before approving the loan. If you’re planning an addition, you will also need the plans to show the bank. In some cases, the bank will also need permits before the loan is officially disbursed.
Other than that, a home improvement loan isn’t much different than any other loan. You need to show proof of income, an acceptable credit score, low debt-to-income ratios and stable employment.
Home Improvement Disbursements
Loan disbursement is one area where you, the lender and the contractor performing the work all need to agree to the terms. For small loans, the lender may disburse the entire loan immediately, but larger loans generally come in stages. The lender will generally release 25 to 30% of the loan initially, then disburse the rest as the contractor hits milestones.
If all parties involved do not agree to the terms, this could create major headaches in the future.
Types of Loans
There are some owners who will use their home’s equity to fund their home improvement project. If you don’t feel comfortable going down this route, which generally means putting your home up as collateral, you’re best suited for an installment loan.
A credit card should always be the last resort for home improvement, unless it has favorable terms, like 0% APR for 24 months. Your best bet, though, is an installment loan, as this gives you set payments every month, and the debt has a concrete payoff date.
How to Choose a Suitable Lender
You first need to decide what you are looking for in a lender. Do you want low APR? Do you prefer no prepayment penalties? Do you need one with outstanding customer support? With those priorities in place, start shopping for the best rates.
Home improvement lenders will use a few factors when considering you for a loan. Your credit history is often the first factor they consider. They then look at your income to verify you can actually repay the loan.
Some online lenders offer you a renovation loan even with bad credit. Use the calculator here to compare 1 lenders. You will find various funding options, but your interest rate would be on the higher side.
Various Lending Options For your Home Improvement Project
You badly need to fix up your home, but limited funds make this impossible. If you cannot get a home improvement loan, you can also try a home equity line of credit. This uses the equity in your home as a credit card of sorts, but in the end, it rolls into a traditional mortgage with a low APR and long repayment terms.
A home improvement grant is another option. These grants are generally available only to people who are 62 and older. There are also special programs where poor families benefit.