Are you looking to remodel or renovate your home? Would you like a home improvement loan to help with the costs? Lucky for you, several credible options for financing your home renovations exist.
We’ll explain how to get the right home improvement loan and help clarify any common questions you may have about a home improvement loan.
Before you finance your remodel, you’ll want to assess how much the renovations will cost and how much you can afford to spend on your home improvement projects. To do this, you’ll need a realistic monthly budget that accurately defines all your expenses for the month and subtract these expenses from your monthly income.
The difference will pinpoint how much you can spend on a home improvement loan. If you determine your debt-to-income ratio is too high, you may want to consider saving your excess money over a few months to pay for the improvements. The last thing you want to do is get caught in a home improvement money pit and not be able to pay.
You’ll also want to check your credit score to ensure your credit is in good standing to apply for a loan. High credit scores also help you secure better interest rates for your home improvement loan.
Related Link: Reasons to Refinance Your Home
There are several different types of home improvement loans for you to choose from. After you get your estimate on the renovations, you’ll want to research the best loan option to finance the project. Major renovations may require a home equity loan, while minor improvements can be funded with a credit card.
Here are six common types of home improvement loans:
A personal loan isn’t tied to the value or equity of your home. This loan is primarily tied to your credit score and debt-to-income ratio. This type of loan is quick to get, and the terms generally require you to pay off the loan within five to seven years instead of decades, like a home equity loan.
A cash-out refinance allows you to update the terms of your mortgage by pulling out a portion of the equity built into your home. This means refinancing your mortgage, so you’ll want to watch interest rates if you choose this option. And you’ll have to pay closing costs, which may be more out-of-pocket expenses.
A HELOC is based on your home’s equity. The HELOC loan uses your home as collateral to secure a second mortgage, which can be for the sum of the equity built in your home.
This type of loan must have a draw period of about ten years, where you only have to pay the interest during this period. Once the draw period ends, you must start making the principal payments. If you are planning to sell your home within this draw period, it can offer some flexibility and advantages of repaying the loan when you sell.
A Home Equity Loan is similar to a HELOC loan, except you immediately pay principal and interest on the new loan, which helps restore equity to your home loan. These loans typically have fixed rates for fifteen to twenty years. This is a better option for expensive renovations where you plan to stay in the home for a long time.
A credit card may have a high APR, but for small projects, this may be a smarter option. A credit card is fairly easy to apply for and can cover minor or emergency home improvement needs. However, you’ll want to pay off the balance as quickly as possible to avoid the higher interest rate.
A Department of Housing and Urban Development (HUD) backed loan, an FHA 2039(k) Rehab loan is designed to help homeowners repair and modernize old homes. If you own an older home, you’ll want to talk to a mortgage lender to find out if your project would qualify for this loan.
Still, aren’t sure which home improvement loan is right for your project? Talk to the Loan Brothers, who can help you make an informed decision.
Related Link: Signs You’re Ready to Buy Your First House
The size of your project will largely determine what type of home improvement loan you’ll need. For large projects, a HELOC or home equity loan would be able to finance your major renovations. If you don’t have significant equity in your home, you may want to opt for a personal loan or credit card to pay for the project.
If you aren’t sure which loan option is best for your project, you may want to talk to a trusted lender about which loan would be the most beneficial for your improvement needs. The Loan Brothers have a proven history of helping clients find the best loan option for their projects.
When selecting a loan, you’ll want to price out the best loan option from reputable lenders. Lenders that offer home improvement loans include:
You’ll want to shop around to different lenders to find the best interest rate, terms, and fees. And don’t be afraid to negotiate, especially if you have great credit. It's a good idea to choose a lender who specializes in home improvement because they understand the demands and needs of some projects.
Even borrowers with bad credit can secure a home improvement loan. There are lenders who specialize in helping those with less-than-perfect credit. But be careful that their fees and terms aren’t crippling for you financially over time.
Reach out to the lender that best meets your needs and terms and start the application process. The application process is fairly similar to a home mortgage loan, and the lender may ask you to verify income, tax returns, and other relevant documents.
The Loan Brothers can help you navigate this process and make it the least painful. We’re focused on quality customer care while providing the best rates and options for our clients.
If your home needs considerable home improvements, you may want to get a home improvement loan. There are several fantastic options that allow you to use the equity in your home to improve its overall value. If you need help financing your next home renovation project, contact Mares Mortgage to learn more about our terms and interest rates.
Want to start the pre-approval process for a home improvement loan? Contact us to find out what loan options are available to you.
Related Link: How to Get a Home Improvement Loan
