Home Improvement Loans: What You Need to Know Before You Apply

Renovation is a massive project and requires you to plan it properly! Some of these projects require you to spend a lot of money during the construction and renovation! If you do not have sufficient funding then do not worry as it is still possible to go ahead with the project! A home improvement loan is all that you need! Here is a complete guide to how to acquire one and how it is applied for! Read on to find out about the procedures that are involved.

So let us see what is a home improvement loan.

This is financial help from an organization like the bank which lends a certain sum to a client to initiate the process of home renovation. Personal loans and home equity loans can be used for accomplishing the job of home repair and renovation.

What are the major categories of home improvement loans?

You do not have to strictly stick to a home improvement loan for accomplishing the job but rather opt for other loan schemes as well to get some money for completing the home renovation.

• Personal Loans- this is the most common type of loan which is used for initiating the job of home renovation. The policies are simple and you can easily get a loan without any hassle. And the best part is no collateral is involved in the disbursement of the loan. Hence you do not have to mortgage your property in exchange for the money although the rate of interest is slightly higher than the rest!
• Home equity loan- this is a secured loan on the behalf of the lender! The part of your share in the house which is your equity is used as collateral that the bank or the organization can cease on the occasion of your failure to repay the debts. Since the rate of interest is low, many borrowers are observed to opt for this option. But before you opt for this loan, you have to understand the concept of equity first! If you are still paying the mortgage or EMI of the home loan and say you have paid "x" of the total,"y", then your equity is calculated on "x". About eighty percent loan is available on the share of "x".
• Home Equity Line of Credit- Here is another loan that also acts as a home improvement loan! This is a combination of a credit card and home equity! You must have at least 20% equity in the house to be able to opt for this loan.

After much discussion you must be wondering which of these loans is best for you, isn't it?

How to know which loan is ideal for you?

There are some common checkpoints for applying for any of these loans! Ask yourself these questions to understand which loan suits you!

1. What is the emergency for you to obtain quick cash- if you need the sum immediately then a personal loan is always a quick-fix solution to your problem.
2. Do you have equity in your home- if yes, then how much? If less than 20%, you can't apply for a Home Equity Line of Credit but try out a simple equity loan otherwise if not then a personal loan is your only option.
3. How good is your credit score- if your credit isn't great then getting a personal loan will be a rather tricky job.
4. Do you need the money completely at once or from time to time- if you need a lump sum of money all at once for paying the contractor then go ahead with a simple equity loan or personal loan otherwise Home Equity Line of Credit is good for acquiring money from time to time.
5. What is the importance of saving money- personal loans have a high rate of interest compared to simple equity loans and Home Equity Lines of Credit but again for the latter two you have to keep a part of your home mortgage.

Uses and cost of common home improvement loans-

Home improvement projects can be both small and big! If you have a door to fix or a plumbing job to carry out, the cost is less, however, giving an entire makeover to the house will require a lot of money! Make an idea of the estimated expenditure during the process. Since you are likely to run out of money, budget yourself a little higher for emergency funding and submit the total requirement to the bank or lending association.

Yet it is not possible for you to be precise about the cost and the expenditure which is running in the market every day or the labor cost! We have included some of the basic examples of repair costs for certain products!

• Adding a wooden deck—$14,360
• Doing a minor kitchen remodel—$23,452
• Replacing an asphalt shingle roof—$24,700
• Adding a manufactured stone veneer around the house—$9,357
• Replacing a garage door—$3,695

These are some of the common things that you can add and alter around the house! The actual prices might still vary because of the additional labor cost and so on.

What are the benefits and disadvantages of home improvement loan-

1. Personal loan-

Pros-

• You can make monthly payments in terms of EMI and get done with the loan amount smoothly.
• There is no involvement of equity during the process of the loan.
• You can release the money immediately within short notice as the procedures are simple.

Cons-

• You will get the money collectively in a lump sum.
• The rate of interest is quite higher compared to the rest.

2. Simple equity loan-

Pros-

• There is a fixed monthly payment that is made.
• The rate of interest is also quite low so repayment becomes easier.

Cons-

• Paid in one lump sum amount.
• You have to have a share or equity of your house mortgaged to the bank.
• There may be a closing cost involved.
• And you might have to allow a home inspection.

3. HELOC-

Pros-

• You can take money from the bank as and when you require.
• The rate of interest is very low.

Cons-

• You should have at least 20% equity in your home to lend out!
• A closing cost may also be involved.
• There may be a home inspection involved.
• The monthly payment is not fixed and it may fluctuate over time.

You must be wondering if these three are the only solution to home improvement funding or whether there are other opportunities as well! There are certainly other alternatives if you do not wish to opt for any of these three.

1. 0% APR Credit Cards-

Credit card helps you to arrange some quick cash but it is also a risky move! However, if you are careful and know how to tactfully use one then there should be no problem. The 0% APR Credit Cards have an introductory period that extends for 12-21 months. When handling a credit card make sure you borrow what is in your capacity to pay back at one time.

2. Cash-Out Mortgage Refinance -

This one comes to your use when you need a higher sum of money to repair and renovate your home! It is a technique of using your equity in the house to remortgage your residence. So for example you owe a $25,000 mortgage to the bank and you refinance it with a $30,000 mortgage then you will be paid $5,000 in cash for the renovation task! This technique requires a lot of thinking as you are increasing your debts on a second mortgage however this is a potential process used by many.

Factors to keep in mind when taking a loan

Now comes some of the factors that you should consider before opting for any loan from a bank or any sort of organization-

1. Always read through carefully and check the loan eligibility criteria-

Every organization has there a separate set of claws and rules for lending money to a client apart from the basics like job, age, a title deed, and so on! You must go through their norms carefully to understand whether you are eligible for the loan or not.

2. Now it's time to compare the interest rates-

There are two factors that determine the rate of interest, credit limit and the capacity of repayment! So before you opt for the loan, clarify and ascertain the rate of interest that you are expected to pay!

3. Always keep all the documentation right-

Keep all the documents safe and collected before you start with the loan procedure! It is needless to say that many procedures and paperwork are involved prior to loan disbursement and if you do not wish to delay the process then keep all the documents ready!

4. Check your credit scores-

If your credit scores are low then your loan request may not get approved. The better the credit score the lower the rate of interest! To ensure that you have a high credit score, pay your old loans on time.

5. Decide the tenure of repayment-

Remember that you have to repay the loan so carefully calculate your expenses over the month! If you are clueless about your expenditure then you will neither be able to pay back the money nor handle your monthly requirements. It is to be noted that the maximum repayment tenure is thirty years for salaried persons and twenty years for self-employed.

Hence these are some of the things you should consider before you rush for applying for a home improvement loan!

What are some of the basics yes and nos to keep in mind for home improvement loan

1. When you are opting for a home improvement loan, the agency may try to promote its product along with the loan, this is a common business strategy! The most common item that they will try to sell is a credit card if it is a bank! You must understand that a credit card, although in the front it seems like easy cash, is a big burden to load yourself with! Unless you are in the dire need of one and have full confidence that you can use it judiciously do not opt for one.

2. Another thing that you are likely to fall into is the amount of the loan! With a good credit score, the lender will push you to avail of the maximum limit! Unless you need the whole sum, opt for only the amount that is essential for the project! Do not increase financial liability and burden on your shoulders. Remember that sooner or later you have to pay back the loan, so the lesser is the better and make sure you keep the tenure period short to reduce the rate of interest.

3. If you already have an existing home loan, car, marriage or education loan that you have to pay every month please be careful before you opt for another one! Calculate the total EMI that you have to pay every month! If that does not put pressure on your regular expenses then only get yourself into another loan.

4. If you already have an existing home loan on the same house then approach the lender to discuss the terms and policies of the new home improvement loan! You have to provide fresh documentation and paperwork for the process to begin! After calculating the equity of your home, the lender will give you a sum of money that you can borrow again! Keep your expenses renovation within that budget.

5. In conclusion, we can say that getting a loan is not as easy as it seems! It is not as tough as you might think! All you need is proper planning of your monthly budget and the liabilities that you have to forfeit first! If you have a clear understanding of the expenses and can balance it with another home improvement loan then go ahead and get one for yourself.

Thoughts that will help you to make the best negotiation for a home improvement loan-

1 How much money do you exactly need because more is not always the best option -

If your credit scores are high then the bank will be keen to offer you a loan, that is not an issue but the question is the amount of sum that you will be needing! If you take much more than what you need then you will end up in bugger debt! Spending money is easy but to repay them is a hard task! By taking more than what you require, remember that you are increasing the tenure period and the rate of interest of the total sum! Instead, take a little more than what you need so there is a surplus for the emergency fund but not excess to run you into unnecessary debts.

2. Check your eligibility to understand which loan you qualify for-

There are several loans in the market that you can not avail of for home improvement. However, there are some criteria that are involved in each loan! You must check it before you rush to apply for a loan. If the time period and the loan amount are matching with your preference and the bank is willing to provide you with the sanction then go ahead with it.

3. If you need faster funding then you have to opt for a personal loan-

Other loans like simple equity loans take a particular period of time for getting sanctioned on the other hand a personal loan is the quickest that you can opt for! So if you are in need of some emergency funding and the sum needs to be produced as soon as possible then a personal loan is the best option for you.

4. Always keep a backup-

It may happen that even after your loan is sanctioned and you have begun with the procedures, for some reason the loan is unable to proceed! Under such circumstances, you have already negotiated with the contractor and need the money soon! So that you do not run into any problems, keep some other loan strategies as a backup plan.

Bottom Lines-

so after much discussion, it is clear that getting a home improvement loan may not be very tough but it is a tactful process! Make proper planning and you will be able to accomplish the task!