After awhile the home can seem drab and out of date. When this happens, many homeowners decide it’s time to do some remodeling and home improvement. Most rely on home improvement loans to add value and comfort to the dwelling. If you qualify, the process of getting a loan can be easy. The following information is designed to show you how to get approved and explain how this process works.
Remodeling the home requires money, and unless you have some put back for that purpose you will have to rely on a bank or other lending institution for financing. Typically, these institutions require a defined purpose for the funds and will lend money for a specific period of time. This is generally for a shorter time than the average mortgage. It is not uncommon for homeowners to invest in monthly payments for five to ten years in order to make improvements to their homes.
Equity in the home often serves as collateral for such loans and an individuals personal financial standing determines terms and interest rate.
Understanding the Project
The initial step in getting a loan to improve the home is to know the scope of the project one wants to accomplish. You are much better off if you can make a precise estimate of the cost. It is not a good idea to go into this without a specific amount of money in mind. This is the reason a reputable contractor’s estimate is so valuable.
It is possible to receive a loan to upgrade the home to add a room or wing, improve the landscape or any other project that will add value to the premises.
It is the equity that builds up over years of making mortgage payments that makes getting the financing needed to improve one’s property relatively easy. To determine your home’s equity, subtract the balance on your mortgage from its current value. During the early years, when your loan is new, the bulk of your payment goes to the interest. Over time that changes and you gain more equity each month. As home values rise in the area in which you live the equity rises, as well. The security required for remodeling loans is this equity. Be sure you have enough equity for the project before securing financing.
Although there may be enough home equity, responsible homeowners would never consider adding another burden to their financial life without ensuring they have the ability to repay. A second loan payment can be devastating to someone who is already struggling to pay a mortgage. Additionally, lenders look at qualifications before lending money. Even though credit history is not always looked at when using equity as security, a strong credit score is beneficial when making an application.
Bad credit does not always preclude securing a loan when other valuables can be added as security. A cosigner or offering personal property can help. Specialty lenders are another option, but remember this generally means paying higher interest rates.
A home equity line of credit is another option that offers flexibility to a home remodeling loan. The open ended nature of this financing strategy allows you to use only what you need and start the repayment process immediately. It also lets you make major improvements to the home in incremental steps.