A home improvement loan is an unsecured personal loan that is used to pay for home repairs and upgrades. It is unsecured in that it does not require one to put up an asset as collateral, such as a house.
Getting a loan for home improvement allows the borrower to upgrade his or her property under the loan terms marked out by the bank, lender, or any other financial body granting the loan.
When you get approval for a home improvement loan, you’ll collect all funds upfront, and you’ll be expected to start complying with the repayment term which can be as long as one to 15 years, you just have to make regular payments on the loan, repaying the principal with interest.
However, before securing your home improvement loan, there are certain action steps you are expected to observe. Those steps are hereby discussed in this article.
Ways to Get a Loan for Home Improvement
Estimate the Cost of Your Project
Before you apply for a loan, ensure you get estimates from contractors. They will help you establish a baseline of how much the project of your home improvement will cost, which will provide an idea of the amount of money you need to borrow.
Make sure you get these estimates from professionals, considering the fact that home renovations often run into unforeseen roadblocks during the construction process.
For instance, you may not know that your pipes have leakages and you will surely need that to be taken care of during the improvements. Meanwhile, it could have a heavy price tag which will need to be put into consideration in your final amount of loan.
Knowing the estimates of your home improvement project would also help you evaluate if you can pay for some of the improvements in cash. If you can, it will help lower the loan amount you need, which will ultimately save you money.
Furthermore, do not get an estimate from just one contractor. Ensure you request estimates from several contractors, so you can shop around for the best deal needed for your home improvement project.
Be Specific About Your Need For a Loan
Home improvement loans are generally attached to an exact home upgrade or maintenance project, such as the installation of a kitchen or the painting of your house. Note that whenever you apply for a home improvement loan, there will be a higher chance of gaining approval if you can explain and convince your lender about the actual exact need for the loan.
For instance, if your reason for a home improvement loan is to add a furnished basement, state it to the lender. The lender tends to understand that the loan amount is needed to increase the value of your home and will view it as a credible intention for use of the loan. Hence, they are more likely to grant your request.
Be Aware of the Current Home Improvement Loan Rates
The current average home improvement loan rates range from about 3 percent to 36 percent. However, while the rate at which you are quoted depends on several factors, the most essential is often your credit score. The principle of “the higher your credit score, the lower your rate” is usually followed.
Moreover, many lenders provide their minimum credit score requirements, plus the credit score required to receive the lowest rate.
Nevertheless, even if your credit score is lower than the minimum score requirements, application for the loan is still worth attempting, as lenders also consider other factors such as your debt-to-income ratio, annual income, plus your employment status when they are determining your rate.
Be Specific About Your Amount Request
You will also have a higher chance of home improvement loan approval if you avoid asking for an exorbitant sum of money. Instead, focus on the real estimated need for your home improvement project.
Banks and lenders favorably look upon home improvement loan applicants that have a good estimate of the cost of their home project, as well as an accompanying needed loan amount.
Examine Your Credit
Just like any other loan, a loan for home improvement depends on your financial health. Check your credit score ahead and ensure it is sufficient for the approval of a loan. Nevertheless, ensure you avoid mistakes or inconsistencies in your credit report that could negatively affect your application for a home improvement loan.
Examine the Equity in Your Home
Lenders that grant loans for home improvement usually check the worth of your home, expressed by how much equity you have in your property. The equity is estimated by the money you would pocket if the home is to be sold today. Therefore, it is a good idea to know the equity in your home and ensure your lender is also aware.
Be Certain You Need a Home Improvement Loan Indeed
Be informed that a loan for home improvement has fixed and enforced repayment obligations attached to it, including relatively high-interest rates.
Thus, it will be good if you can gather your home renovation cash from your savings, or low-interest credit card, or from a zero-interest loan from a friend or family member, which would save you money in the long run.
Examine Various Home Improvement Loan Options
Once you cross all ts and dot all is in terms of your qualification for a loan, proceed to research different types of loan options before you choose the one that is best for you. The different types of VA cash-out loan options you can choose from include home equity loans, home equity line of credit, FHA 203 (k) loans, etc.
When you are shopping for the best type of loan for your home improvement, look for the one with an affordable repayment term and the lowest interest rate.
Home Improvement Loans: Not a Bad Idea
Home improvement loans are flexible and can be used to take care of the cost of just about any project that will upgrade your home. The survey has it that about 11% of homeowners will use loans to cover home improvement projects.
If you have fair credit and you know where to get the best deal, home improvement loans are not so difficult to get and they are highly valuable as a resource to maintain and improve your home. The effort will add a lot of worth to your home.