You knew that it was going to happen eventually. You’ve been dealing with it for months, but you just can’t stand to look at the peeling paint on the outside of your house, the stained carpet in the living room and the cracks in the ceiling that spider throughout the interior. Something has to be done about your home, and it needs to be done now!
Don’t worry; you’re not alone. Homeowners always wish that they could make home improvements whenever something goes wrong, but bank account balance won’t always allow that to happen in an attractive time frame. That’s why there are home improvement loans.
A home improvement loan is any type of personal loan or refinancing that allows a homeowner to make home repairs that will boost the value of the property and the house. Repairing leaky faucets, replacing torn or worn flooring, remodeling outdated rooms and décor, and even adding a swimming pool can be a reason to obtain a home improvement loan, and this is not as uncommon as you might think.
There are several different types of home improvement loans, and they can be obtained from a variety of sources. Depending on your credit history, the equity you hold in your home and the nature of the repairs or additions, home improvement loans can vary between a few hundred dollars and several thousand.
Here are a few types of home improvement loans:
These types of loans can be sought from your current mortgage lender or from a secondary lender, such as bank, credit union or loan company. But before you jump right into the loan application process, there are a few things that must be considered.
First, you should obtain reasonable estimates from several contractors who might perform the home improvement. For example, if you need to have your plumbing fixed, contact at least three plumbers in your area and have them give you a written estimate of the projected costs. Although unforeseen problems can add to the cost of repairs or additions, you should have a general idea of what it will run. The lender from whom you obtain the home improvement loan will want to see these estimates.
Once you’ve done that, prepare a written explanation for the repairs or additions and your reasons for needing them. Include safety hazards that might be resolved, aesthetic benefits and convenience issues. Your prospective lender will want to know exactly why you feel these home improvements are necessary.
And finally, have your home appraised without the home improvements you’ve planned, and then ask the appraiser what the difference will be once the home improvements have been completed. Your lender will want to be reassured that the value of your home will significantly increase with the completion of your home improvement plans. It is always better if the amount of the value increase is more than the cost of the improvements themselves. This gives the lender justifiable reason to lend you the money.
Once you have successfully determined these factors, it is time to choose the type of loan for which you’d like to apply. This should take substantial research, and you should never make a decision lightly. Interest rates, risks to your credit and balloon payments are all part of the package, and if you choose the wrong avenue you could wind up spending far more than you originally intended.
You should also beware home improvement loan scams in which contractors partner with unscrupulous lenders to take advantage of your desire to fix that leaky faucet. A contractor will “recommend” a lender who is either a friend of his or a previous business partner, and will talk you into signing a loan application full of hidden costs and exorbitant interest rates. It is always better to go through a reputable lender rather than trying to cut corners.
Similarly, taking out a second mortgage could possible be more hassle than you might have thought. Take a long look at the equity you’ve built, your monthly mortgage payments and your schedule for the next ten-to-twenty years. Speak with a credit counselor or a financial advisor if you aren’t sure which avenue will be best for you. It is always best to seek sound advice rather than jumping into something you don’t fully understand.