Home renovation loans help people improve their homes’ value and aesthetic appeal. For example, individuals can take consumer credit to remodel their kitchen or upgrade their living room.
Lenders provide various facilities for home renovation purposes. Therefore, a borrower may not know which loan to go for. Keep reading to understand different home improvement loans, where they apply, and how one can choose a loan that suits their needs.
How to Select the Best Home Renovation Loan
Before an individual applies for a loan to improve their house, it is crucial to think through a few things. First, is it worth taking this loan, and will it meet their needs?
If one decides to proceed with a consumer credit for home improvement, they need to estimate the amount they need to borrow. They can contact their contractor to help them calculate the possible amount or use online platforms offering such services.
Besides, it is essential to compare lenders that provide home improvement loans. A borrower can weigh them based on APR value, loan terms, loan amount, fees, discounts, penalties, and customer application. The evaluation process will help them settle for the most favorable lender.
Types of Home Renovation Loans to Borrow
An individual can fund their home improvement project using the following loan types;
Home Equity Loan
It is a loan that allows a person to borrow against their home’s equity. However, it doesn’t pay off their mortgage. Therefore, they keep paying the monthly payment with their new home equity loan if they have a mortgage.
Individuals can take this loan type to improve their house if they have built up a significant home equity amount. Besides, it can be a good option for funding a big, one-time remodeling project. Lenders may offer it at a lower fixed interest rate because the house will act as collateral.
FHA 203 (k) Loan
This consumer credit allows borrowers to join their mortgage and home improvement costs into a single loan. However, they don’t need to apply as two separate loans or pay their closing costs twice. Instead, they pay for their home cost and renovation at once when purchasing the house. Therefore, they will have the funds to improve the house when the time comes.
It is a perfect solution for a person who wants to buy a fixer-upper home and understand that they need funds to renovate it soon. The good thing with this loan is that the government backs it. Therefore, borrowers can enjoy low down payments and access it even with poor credit history.
In a cash-out refinance loan, an individual refinances a new mortgage loan with a higher balance than what they currently owe their lender. Then, they pay off the existing mortgage loan and remain with some funds that they can use for renovation.
Usually, the money they receive from this loan comes from their home equity. Even though there are no rules that state the funds should be used in home renovation, one can use them to fund such a project.
An individual can go for a cash-out refinance if they have a home and can secure a lower interest loan than their current mortgage. Besides, it can help them to shorten their loan term.
Home Equity Line of Credit (HELOC)
The loan is similar to a home equity loan but works like a credit card. Therefore, a person can borrow from it, pay it back and then borrow again. Besides, its interest is variable; therefore, it can rise or fall over time. However, the interest rate only applies to a person’s HELOC balance and not their entire line of credit.
Therefore, it can be a good idea to take it when someone has few and less expensive home improvement projects or long-term remodeling projects that require funds frequently.
Finally, one can finance their home renovation project through a personal loan. Since this loan is not secured, one can get it faster than a HELOC loan. However, they will pay it at a higher interest rate, but they can find a favorable rate if they have a good credit score.
Therefore, if a person hasn’t built up considerable equity for their home to borrow against, they can go for a personal loan. Besides, the loan is easier to access and can be a perfect solution for emergency home repairs.
Taking a loan is the best solution when one wants to do a home renovation project and doesn’t have cash at hand. However, they should evaluate their needs first to choose a consumer credit that matches them. For example, if one has an existing mortgage and wants to lower its interest rate, one can cash it out to find a favorable rate.