Home improvement is one of the best ways to increase the value of a home and the enjoyment of home living. But, it can be easier said than done. Home improvement can be quite expensive: while tasks like swapping out ceiling fans may be affordable; bathroom remodels or bedroom editions can cost thousands of dollars.
Some people have enough money in savings to pay for this: they simply hire a contractor and get out their checkbooks. But, many people can only upgrade their home with the help of a bank. Considerations When Applying for a Loan Getting a loan for any reason was much easier in the past. Since the market crashed in 2008, lenders are warier about loaning money. So, people who want to borrow need to make sure that now, more than ever, they are prepared before submitting loan applications.
Before submitting a home improvement loan, you should get estimates from contractors and specify the projects you plan to implement. This will help you in two ways: first, they will demonstrate to the bank that you seriously intend to use the money they are lending to upgrade your home; and second; they allow you to tell the bank the actual amount you need to borrow.
Additional considerations before applying for a home improvement loan include
Equity: Many home improvement loans are dependent on the amount of equity you already have in your home. This equity (the portion of your home that is already paid for) offers a sort of safety net for the lender, which is why it is so important.
Any type of loan, home improvement or otherwise, takes credit history into consideration. If you have a good credit score, you will be more likely to get a home improvement loan on favorable terms. Poor or fair credit won’t always eliminate your ability to get a loan, but it can substantially increase your interest rate.
Income, like equity and credit history, provides the lender with a window into your financial standing. If you have a steady flow of income such as a regular salary, a bank will be more likely to lend to you–an adequate income level provides the means to pay back the loan on time. If you have an income flow that is irregular, or nonexistent, obtaining a loan will be much harder. However, it may still be possible if you have strong finances elsewhere, such as a large savings account.
The Advantages of a Home Improvement
Loathe most obvious advantage of a home improvement loan is that it gives you immediate means to upgrade. Yet, this is not the only advantage. Per the U.S. Department of Housing and Urban Development, many home improvement loans have very reasonable terms. This is true even if the equity in your home is limited.
If you haven’t lived in your home long, there is a good chance that you still owe a large amount for your house. In this case, an FHA Title 1 Loan may be your best option. These loans are derived from a bank’s own funds and insured by the FHA (Federal Housing Administration) against loss. For you, they offer a variety of benefits including: the flexibility of doing home improvement projects yourself or hiring a contractor; no security needed for loans under 7,500 dollars; the ability to obtain a loan as long as you own property, have decent credit, and endorse a note agreeing to repay the loan; few restrictions (you can use the money to pay for engineering costs, building permits, appraisal fees, supplies, etc.); the ability to work with one lender; and protection from fraudulent dealers (the FHA requires that dealers who arrange loans be approved first by the lender).