As a homeowner, you will frequently experience the need to make repairs/improvements. By making upgrades and necessary repairs to your home, you add to the resale value of your home through its enhanced looks and style. You also increase your quality of life. Examples include face lifting, kitchen/bathroom remodeling, etc- About Home Improvement.
However, it is usually expensive to carry out. And while it is always good to save up so you can cover those expenses, it does not usually turn out to be possible. This often makes people with a big home project to take up a home improvement loan.
A home improvement loan describes the financing you get for your home improvement projects. Even though the thought of a home upgrade through a home improvement loan may occur naturally, do not just rush into it. Here are two crucial things you need to know about home improvement loans.Read also about:vinyl flooring in dubai
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2 Things You Should Know About Home Improvement Loan
Types of Home Improvement Loans
Apart from getting a personal home improvement loan, there are other financing options that can help you cover your home improvement project costs. These loans include home equity loans, cash-out refinance, and credit cards.
It is essential to know the difference between them, as different types of funding are available based on the type of loan you choose, and their lenders vary in interest rates.
Personal Loan
A personal loan is given by various banks, online lenders, and credit unions. A borrower would usually need excellent credit before consideration. But, fair to low credit scores can still approve you, depending on your situation financially. Since there are a lot of lenders around, you should shop around. Most local banks offer personal loans, or you may get a lender online.
Applying for a personal loan is straightforward, but you should start quite earlier than when you need it, as it may take a day, to a few weeks, before approval.
There are some pros and cons of personal home improvement loans. The pros include:
- Fixed payments- Personal loans usually have fixed monthly payments, making it easy for you to budget for them reliably.
- Fast funding options- Online applications do not require too much time, and some lenders will get you the available funds in a short while.
The cons also include:
- High rates- Since personal home improvement loans are not secured, the interest rate is often high, depending on the type you are taking up.
- No benefits of tax- With mortgage interest, there is no privilege to claim a tax deduction on the interests of personal loans
Home Equity Loan and Home Equity Lines of Credit (HELOCs)
This loan is a second mortgage paid as a lump sum and gives you the chance to use your home’s equity as collateral. This option is one that is quite popular, and borrowers often use it to enhance the value of their real estate.
On the other hand, a home equity line of credit allows homeowners to access home improvement funds as needed. Instead of obtaining the loan funds as a single lump sum, you can always draw from the funds as you need them and only pay interest on the total amount you have borrowed.
HELOCs are a great option if your home improvement costs will be spread out over an extended period.
The approval can also take a few days, and it can extend to six weeks, depending on your home value, how much equity you have, as well as your financial situation. Since it could take you six weeks before you finally obtain a home equity loan, it is also advisable to seek out a few months before starting your project, to help you budget accordingly.
Cash-Out Refinance
A cash-out refinance allows qualified homeowners to use the equity in their homes for everything, from paying off credit cards and student loans, to making home improvements or buying a car.
Unlike a home equity loan or HELOC, a cash-out refinance involves replacing an existing mortgage with a larger loan and then using the difference to cover other expenses.
Lenders usually require borrowers to have a minimum of 10% to 20% equity in their home after refinance. However, if your equity is less substantial, you may need to pay for private mortgage insurance (PMI) to safeguard the lender’s investment and minimize your mortgage poses.
Comparing Home Improvement Loans
If you wish to get the loan that has the best features and rate, then shopping around and pre-qualifying will be a remarkable feat for you. There are certain essential features to be compared between the home improvement loans presented to you.
Annual Percentage Rates (APRs)
APRs signify the entire cost of the loan, including any fees that may be charged by the lender. A credit union may perhaps be the perfect place to start. Moreover, the maximum APR is 18% at federal credit unions.
Amount of Loan
The maximum amount of loan some lenders can offer may be around $35,000 to $40,000. However, if your project looks like it will cost way more than that, search for a lender that can give a higher loan amount.
Loan Term
If a loan has a long repayment term, it will have low monthly payments, but you will have to pay more interest over the existence of that loan, compared to a shorter loan repayment term. To view estimated payments on loans with various terms, there is a home improvement loan calculator you can always use.
Adding a Co-Signer or Co-Borrower
Some lenders will give you the room to include a co-signer or co-borrower in your loan application. The addition of someone with better credit or higher income to your loan application will help to reduce your APR and also increase the amount of loan you can obtain.
Consider Your Eligibility
Before you apply for a home improvement loan, ensure you put into consideration how qualified you are. This includes taking an in-depth look at your credit report, which can be a significant factor in determining whether you will be approved for your desired home improvement loan. It can also determine the interest rates that will be available to you.
However, irrespective of the option you find yourself in, ensure you make timely payments in order to safeguard your credit score from experiencing any pitfall.
