Having a home improvement loan may allow you to finance remodels and repairs, ultimately adding to the property’s value and aesthetic. However, you might not have enough funds to finance a basement upgrade or bathroom remodel on your own.
Fortunately, banks and non-bank institutions offer many options to provide you with the cash you need for projects. Prepare to add a page to the home rehab diaries as you discover five home improvement loans to look into.
Home Equity Loans
Home equity loans are the most popular alternatives when financing a renovation project. These types of loans are applied in addition to your mortgage and may require using your property as collateral. This means your residence would secure the financing, placing it as a form of payment in case you don’t repay the loan.
Many borrowers and homeowners consider home equity loans as second mortgages since they apply for specific amounts and have to pay them back within a certain time frame, typically in monthly payments.
Home Equity Line of Credit (HELOC)
HELOCs are similar to home equity loan options since they also use your home as collateral. However, a HELOC offers a revolving contract, unlike a home equity loan.
Lenders may approve borrowers for a specific amount of credit, meaning individuals can apply for what they need as long as they stay under their threshold.
Homeowners may access their credit through check or use a credit card assigned to their line of credit account. It’s vital to note that HELOC funds have a draw period, limiting the access time frame.
Personal Loans
You can also acquire funding for home improvement projects through a personal loan. Personal loans may be an ideal alternative for those uncomfortable with using their property as collateral in a loan.
These contracts are straightforward, requiring borrowers to pay back funds with added interest on a structured schedule. The main components of a personal loan may include the amount borrowed, interest rates, terms, and set monthly payments to fulfill until the loan is paid in full.
Cash-Out Refinancing
Cash-out refinancing is essentially a new mortgage loan with a more significant balance than what you owe. It may come across as one of the most drastic options on the home improvement loan list, but it best suits those seeking to refinance their property in the first place.
A borrower would trade equity in their residence for a cash payout. You would then pay off your existing mortgage and keep the remaining funds. The money you save then becomes your home equity, resulting in available funding for home improvement.
This option may result in a higher monthly payment or extend your mortgage to pay off loans and return borrowed cash.
FHA 203(k) Rehab Loan
An FHA 203(k) loan is the best option for those seeking extensive property repairs. A homeowner will take out a 15- or 30-year fixed mortgage from a HUD-approved lender for a deeper look into the process.
The total cost of the contract will factor in the projected value of the home after renovations and the cost of work it will take to fix the property.
Knowing your options before applying for a home improvement loan is always suggested. Looking into these five home improvement loans provides you with solutions to your remodeling woes, should you lack funds. However, when choosing your lender, remember to compare rates and features.
