We all want to improve our homes; and due to the fact that most of us are spending more time at home, we have a lot more time to focus on what we don’t love about our own houses. This means that many people are considered home improvements. There are so many benefits to renovating your home. For one thing, you’ll finally be able to have the decor, the feeling, or even the practical additions to your home that have been lacking. When you’re happier with your house, it’s obviously easier to relax. Certainly, we all need to relax right now. But there are more serious benefits as well. For one thing, home improvements can make a home safer and can ensure that it runs more efficiently. This will save you money in the long term. However, they can also add a good deal of value to your home overall. While you may not foresee selling your home anytime soon, it’s a good idea to get a head start and add as much value to your home as possible when making changes. But understandably, you may not be able to afford certain renovations immediately. With that being said, it’s a good idea to look into a loan to do home improvements.
Many don’t realize that they can take out loans to improve their homes, just as they would take out loans to buy a house in the first place. While taking out a loan for home improvements might seem strange to those who aren’t familiar with the concept at first, it’s really not a radical idea. After all, you already know that you can take out a loan to finance a custom engagement ring. It’s really not much of a departure to take how a loan to do home improvements! Home improvement projects are often expensive, and many people do not pay for them outright, instead financing them over time. The question is really whether or not you’re in the right position to take out this kind of loan right now. With that being said, let’s look into how to take out a loan to do home improvements, as well as why these types of loans are often considered “worth it” in the first place. These types of loans can make a major difference in the long term. While it’s always intimidating to take out a loan, these can yield quite a major reward in the long term.
Can I Get A Home Improvement Loan?
Before you attempt to get a loan to do home improvements, you may want to make sure that it’s a realistic option for you. While many people are certainly eligible for home improvement loans, they are not going to be options for everyone. There are a few ways in which you can assess whether or not the idea is worth pursuing; far before you start getting your heart set on a major kitchen remodeling project. For one thing, your credit score will of course be taken into account. Any major loans will usually not be granted without a certain level of credit score. Most home improvement loans require a credit score that is rated as “good”. A good credit score is concerned between 670 and 739. Above that would be a very good score, between 740 and 799, and exceptional, between 800 and 850. A score from 580 to 669 is considered fair, while anything below a 580 is considered poor. Your credit score essentially reflects how reliable and capable you will be in terms of paying back your home improvement loan.
Typically, your credit score will need to be backed up by some documents verifying your income. These will usually come in the form of pay stubs or bank statements, or perhaps W-2s or tax returns. You’ll have plenty of options in terms of verifying your income, whether you have a traditional employer or are self-employed. Now, some people do get home improvement loans based on their home’s equity. They do this by having their home appraised, through which its value can be assessed. This will be compared to what you have left to pay on your mortgage. Now, if you’re initially denied a loan to do home improvements, don’t give up. You may simply need to put off your home improvements for a while. The best thing to do in this case is to work on building up your credit score, paying off your mortgage, and saving money so that you become a stronger candidate for a loan. Right now, just 34% of Americans have monthly budgets to manage their finances. Having a monthly budget will make you a stronger candidate for a home improvement loan, and will indeed help you pay off your loan in the future.
How Do Home Improvement Loans Work?
Next, you should consider exactly what kind of loan to do home improvements that you’re going to get. The most common type is a home equity loan. When you look at people who add a new roof to their house, or begin remodeling a room, they’re quite often financing that through a home equity loan. Now, a home equity loan, or a home equity line of credit as an alternative, would be gained through taking out a second mortgage. Now, this isn’t going to work for people who have less than 20% equity in their homes; that is crucial to the approval process. The great thing about home equity loans and lines of credit is that they often offer lower interest rates than other types of loans. Furthermore, the interest paid on a home equity loan can potentially be deducted from your tax return.
Now, the difference between a home equity loan and a home equity line of credit may seem confusing at first, but it’s actually fairly straightforward. With a home equity loan, the borrower gets the full amount of the loan and a fixed interest rate upfront. Obviously, these loans can vary wildly. A new HVAC system, for example, is probably going to cost less than a major room remodeling project. Usually, the borrower has between five years and 30 years to pay back the debt. Home equity loans are great options for those who want a long time to pay off their debt. A home equity line of credit, on the other hand, is a bit different from a loan to do home improvements. A line of credit will have a variable interest rate, and it may fluctuate depending on the market rates at the moment. Therefore, you may get a much better rate than you would with a home equity loan, or you could end up paying more in interest than you would have with a home equity loan. These are more so built for those who want to pay off their lines of credit in less time. The goal is to eliminate the debt entirely before the rate rises too much. Furthermore, a line of credit could be a stronger option for those who have ongoing projects in mind. The line of credit allows homeowners to revolve a balance, which means that you would take out debt and then pay it off on a continuous basis, rather than receiving a larger amount of money upfront. If you simply need to replace water heaters, then a home equity loan may be a better idea; if you’d like to overhaul your home over time, a home equity credit line may be the best choice.
While these are two of the more popular options, they are certainly not the only ones available to homeowners. A personal loan, of course, would be one of the more obvious choices on the table. Personal loans are unsecured, which means that you don’t have to worry about putting your house up as collateral. You also don’t need to have 20% equity in your home in order to be approved for a personal loan. Nor does your credit score need to be excellent in order for you to achieve a good interest rate. In general, however, a personal loan does tend to have higher interest rates than home equity loans. A personal loan doesn’t need to be massive. You could potentially take out a personal loan in order to take care of a residential door repair project. With that being said, you do need to keep in mind that a personal loan often has to be paid back in a relatively short amount of time. That might not be much trouble for less expensive projects, but it can be quite problematic for those who are taking out larger loans.
Another option would be cash-out refinancing. This differs from a home equity loan to do home improvements in several ways. Essentially, this would involve refinancing your mortgage, and taking money from that mortgage in order to get the amount that you need for your project. Again, this might be a better idea for a more restrictive project, like a foundation repair. This is because your new refinanced loan would not only include the balance of your mortgage but the amount that you “cashed out” in order to fund your project. This might turn out in your favor if mortgage rates have dropped since you initially took out your mortgage. But conversely, you may end up with a worse rate. Ultimately, you will need to pay closing costs for the full loan amount, rather than the amount that you’re cashing out. Home equity loans or lines of credit only require closing costs to be paid on the cashed out amount.
What Do I Need To Be Concerned About?
You need to be careful when taking out any loan, and a loan to do home improvements is no different. Some jump into taking out poor quality loans too quickly, due to the fact that they’re attempting to have hasty repairs done. When you really need to invest in replacement HVAC motors but don’t have the money to do so in the moment, it may be tempting to jump onto a loan that you’re uncertain about paying back on time. But this will only hurt your credit, and make it difficult for you to take out other loans or lines of credit in the future. Furthermore, you need to understand that if your credit is only fair, you may very well end up with a very high interest rate, which would make it even more difficult for you to pay off your debt.
The best thing to do when attempting to take out a loan to do home improvements is to be brutally honest with yourself. Is this loan worth it, and can you pay it off in a timely manner? For that matter, you should remember that while some home improvement projects are worth a loan, other, smaller issues like a garage door repair may be better to save up for over time. You should begin by checking in with your existing lender to see what kind of options they can offer you. As you’ll already have a working relationship with them, it may be an easier process. If you have an especially good working relationship with them, you may qualify for special discounts or particularly good terms. Nonetheless, you should always make comparisons between other mortgage and home equity lenders. Consider not only the terms and interests rates, but any fees and closing costs as well.
Again, there are so many benefits to taking on a good home improvement project. But if now isn’t the right time for a loan, that doesn’t mean that you can’t save up for smaller projects or for that matter finance a project through a lender later. Just keep in mind: don’t rush into anything, even if your entire cooling system has shut down. Be careful when choosing your lender, and be smart when planning your future. Ultimately, you can get what you want no matter what over time. It’s just a matter of how you’re going to go about it.