How to Get a Zero Interest Home Remodeling Loan

 

 

Renovation interior.

You’ve probably heard that necessity is the mother of invention. In some cases, it’s also the inspiration for solutions which seem so obvious in retrospect. But most of us would simply not have considered even a year ago:

Some homeowners are looking to their backyards for additional space, adding customizable sheds to use as offices, classrooms, or workout studios. Such structures, which can be assembled quickly on-site, avoid the stress, time commitment, and high cost of an interior renovation… Most orders… are for home office spaces. Man caves and “she sheds” are also popular, as are music studios and so-called flex spaces, which could work as a spare guest room, play space, or home gym.

Come on, admit it – the possibilities of anything called a “she shed” are endless, aren’t they?

Whatever else you can say about the past six months of Covid-19 lockdowns and shut-ins and dial-backs (not to mention the part where we’re all pretty sure everyone except us has completely lost their minds). It’s certainly meant many of us have been home more often than we used to be. Some of us are working from home full time; others have cut way back on socializing or going out of town.[/vc_column_text][/vc_column][/vc_row]

Wear A Mask, Wash Your Hands, And Remodel Your Home

Even in the early weeks of the pandemic, when you couldn’t find toilet paper at the grocery store and gas dropped to what felt like about a nickel a gallon, some businesses almost immediately picked up. I don’t know about your town, but every home improvement store in my area started to look mighty busy even on weekdays. Customers were masked and “socially distanced”. And we still hadn’t figured out how to look less creepy when we smiled at one another even though you couldn’t see our mouths, but home improvement supplies were flying off the shelves.

My wife and I had already scheduled a substantial bathroom remodel upstairs. The pandemic slowed those plans down a bit. But once it became safe to move forward with reasonable precautions, we talked to our contractor about a starting date. Turns out it was going to be awhile. Something about being home has sparked half the neighborhood (it seems) to start renovating their kitchens, adding on rooms, or remodeling everything within reach. I half expect to look out the back window and see the guy across the way adding an extra bedroom to his tool shed.

It turns out we weren’t alone in our experience. The New York Times recently wrote about the phenomenon in the Big Apple and across the nation:

While many Americans are suffering through a historic economic crisis, those who have not taken a financial hit are focused on ways to make an extended period of isolation more comfortable. Facing additional months of distance learning and working from home, some are making extensive home improvements — permanent alterations that they would not have done absent a pandemic.

Your Guide to Get a Zero Interest Remodeling Loan

Maybe you’re considering some work as well. Maybe it’s time to do some renovating (restoring something to how it used to look) or remodeling (making major changes to improve something) on your own home. If so, you’re going to want to do a little planning and know your options. You may be able to do a few things yourself to keep down expenses. There may be creative ways to accomplish your goals for less time and money than you’d think.

We have almost infinite information and ideas available to us on every tablet, phone, and screen within reach. Let’s make good use of them to educate and inspire ourselves a bit along the way. Let’s be intentional, and smart, and determined. Just because quality labor is in demand right now doesn’t mean you should hire the first guy that comes along or settle for shoddy work. And just because you may need to borrow in order to do the job right doesn’t mean you should automatically go all in with the first lender to approve you.

There are all types of construction loans and a wider variety of lenders than ever before. There are options for home improvement loans for bad credit or ways to refinance your mortgage to both, pay for renovations and lower your interest rate. You may even be able to find a zero-interest home remodeling loan with a little digging.

Let’s look at some of the basics of paying for home remodeling or renovation. Then we’ll talk about some of those home improvement loans for bad credit and that zero interest home remodeling loan option I mentioned. One way or the other, your home improvement project can be possible. It’s all about understanding the process and exploring your options.

Using Equity To Increase Value

If you’ve been in your home for a decade or more, you’ve probably built up some equity over the years. If you take the total current value of your home and property and subtract what you still owe on the mortgage, that’s a good estimate of your equity. It’s the percentage of your home’s value which you “own” free and clear. For credit and lending purposes, it’s treated the same as if you could actually separate that part of the home you own from the sections still “owned” by the bank or other lender.

The equity you have in your home can be used for many different things. From debt consolidation to paying off student loans to securing financing for your new small business. One of the most common – and arguably most practical – uses, however, is to use your home’s own equity to finance repairs and improvements. Because the home acts as security on this sort of loan (just like it did for the original mortgage), you’re more likely to secure low-interest rates and other favorable terms. A better debt-to-equity ratio also raises your credit score, which in turn makes all sorts of things easier and more affordable.

If you’d like to take advantage of your home’s equity to finance remodeling, and maybe even secure that zero interest home remodeling loan I mentioned, or something as close to it as you can get, but know it will be a year or more before you’re ready to pull the trigger, there are things you can do to nudge up your equity between now and then.

Nice Looking Neighborhood – Improves Your Home Equity

If paying a little extra towards your mortgage each month is an option, this not only reduces the principal on the loan, but lowering the principal ahead of schedule can dramatically impact how much interest you’ll pay in subsequent years. Be attentive to normal maintenance and upkeep – clean your gutters, pick up your yard, do basic mowing and landscaping. Volunteer with a couple of other homeowners to cut the grass on that unsold lot down the street or pick up trash along the road leading to and from the neighborhood. Anything that bumps up value for your neighborhood raises the value of your home as well. Anything that makes your home more attractive or helps its condition improves your equity.

Some homes on the empty street

Home Equity Loans

The most straightforward way to finance home improvement is with a home equity loan. As the name suggests, it relies on the equity you’ve built in your home to finance the work. You don’t necessarily want to simply borrow the maximum for which you’re approved, however. Do your planning and research and get some solid estimates for time, labor, and materials, before you apply for the loan. Many lenders will ask for this anyway. But even if they don’t, you’ll be able to make more productive use of this resource if you have a clear plan.

Renovation and remodeling ideally accomplish several things at the same time. Obviously, the most immediate purpose is usually that we want our home to be safer, more comfortable, or more practical to live and work in. We invest in it because we live here. Those same improvements should also serve to increase the resale value or overall equity over time. Not every project raises the value of your home more than the cost of the actual work. But it should always be a consideration. Maybe you’re torn between Option A and Option B for that upstairs bathroom or how to add living space in the basement. If you like both, but Option A will add more value to your home than it will cost to do, while Option B will cost more than it will recoup, the choice is clear!

What Lenders Look at Before They Loan You a Money?

There will be paperwork. The lender may want a full, current appraisal of your property, along with other documentation – almost as if you were buying another home. They’ll probably run a credit check as well. That may seem redundant. Why would they need your credit score or credit history if the home is acting as collateral? Keep in mind that lenders don’t actually want to own your home or sell it to cover a loan on which you’ve defaulted. They want to loan you money – as much as you need and can pay back – and for you to make the payments on time every month.

If they don’t loan out money, they don’t make money themselves. On the other hand, if they spend too much time and effort trying to track you down or take ownership of your home or otherwise deal with your delinquency, it quickly cancels out whatever small profit they were making on the arrangement to begin with. Bad credit doesn’t mean it’s impossible to borrow – especially with a home equity loan – but it may impact your interest rate or other terms.

Cash-Out Refinancing and Other Common Types of Construction Loans

Most of us are familiar with the basic mortgage. (If not, there are some great blog posts about it by my colleagues you can browse.) You borrow to purchase a home and pay it off over time, with thirty years being the most common.

You’ve probably heard about refinancing a mortgage. If current mortgage rates are substantially lower than what you originally agreed to when you bought your home, you might be able to save thousands or even tens of thousands of dollars by refinancing at a lower rate. Essentially, refinancing takes the balance left on your mortgage and treats it as if you’re buying the home from scratch for that amount. The original mortgage is paid in full and you start fresh at the new rate. You pay closing costs and the other normal fees associated with purchasing a home. But a difference of even a few percentage points can make that more than worth it.

Now, here’s an interesting variation on the idea. It’s called a “cash-out refinance.” A cash-out refinance pays off your existing mortgage and starts a new one at current interest rates, just like a traditional refinance. BUT, as the name suggests, you don’t just finance the balance owed on your home. You finance an additional amount – the “cash” – at the same rate and on the same terms as the rest of the new mortgage. Your home still acts as collateral for the loan, including the extra amount borrowed. Meaning you now have a low-interest loan to use for whatever you like.

How it Works

This only works if you have more equity built up in your home than you owe on the principle. Lenders offer cash-out refinancing with the assumption your home equity covers the full amount borrowed. That’s why they’re able to offer the lower interest rates and better terms. Because these loans aren’t the kind of thing you can do very often. And your home is literally on the line. You should make sure you have a good reason for borrowing the extra money. Sometimes debt consolidation or paying down high-interest credit cards makes a lot of sense with this method; sometimes it’s best to look at other options.

One of the most logical uses for a cash-out refinance, of course, is to repair or improve the home itself! You’re literally increasing the value of your home by leveraging the equity you’ve already built. That means a nicer home, better suited to your needs as you grow or age or your family evolves. It also means increased equity over time and a higher sale price if you ever decide to move. It’s not quite a zero-interest home remodeling loan. But it’s borrowing money at a better rate than you’re likely to get through traditional methods while saving yourself thousands or tens of thousands of dollars in interest on your mortgage. That alone could potentially more than offset whatever interest you’re paying on the cash-out portion of the loan!

If you qualify for VA or FHA backing, it can be even better.

Other Loan Remodeling Options

There are other sorts of construction loans homeowners sometimes utilize for new construction or major renovations and remodeling. They’re shorter-term loans designed specifically for what they sound like. Most don’t make sense for the average homeowner looking to remodel. But if you’ve recently purchased a major “fixer-upper,” a renovation construction loan might be a good option for you. Because you haven’t had time to build equity (and a “fixer-upper” isn’t usually value-heavy to begin with), you’ll need other options. A renovation construction loan is government-sponsored and designed to revive older or distressed neighborhoods and communities. The rates are usually competitive. And if you can often wrap the renovation budget and mortgage together as a single loan.

The Zero Interest Home Remodeling Loan

You’ve probably not heard much about these – if you’ve heard of them at all. That’s because they’re not part of a federal program or national promotion. And they’re not available everywhere – or even called the same thing where they are available.

I know, right?

The low interest or zero interest home remodeling loan is an effort by many counties across the United States to revive struggling communities and promote home-ownership among non-traditional buyers. Most work through local lenders, but some may do direct financing themselves.

You can start by searching your state or local government’s website for terms like “home improvement program” or “home repair assistance.” Or, pick up the phone and call the main number, and just start asking. It’s still the government. So depending on where you are and who answers, you may receive an immediate friendly, informed response. Or you may be transferred fifteen times before being inexplicably disconnected and starting all over again. But come on – a zero-interest home remodeling loan? That’s worth a little bureaucratic headache, right?

Home Improvement Makes Satisfy all Sides

Specifics vary with the program. But generally, they allow low-income homeowners to take out home improvement loans at little or no interest. This is possible because the county (or other organization) subsidizes the loan. They act as a guarantee, much like with VA or FHA loans. That reduces the risk for lenders. In return, they promote home-ownership and improvement. Which is good for the community and raises property values and social stability. And all the usual reasons governments promote home-ownership and stable families. Like parks, coffee shops, good roads, good schools, etc. It’s good for everyone and the effect can snowball for the better.

A low or zero-interest home remodeling loan probably means more paperwork than you’d like. But it’s certainly worth it for the opportunity. There’s nothing wrong with renting or apartment living, but there’s still nothing like owning and caring for your own home.

Conclusion

I’ve only hit on a few basics here. There are endless variations to many types of loans. And other options I haven’t mentioned but which we’ve covered in other blog posts. The takeaway is this – if you’re wanting to improve your home, there’s probably a way to pay for it that makes sense for you and your circumstances. With the right planning and a little self-educating, you can increase the value of your home long-term while making it more enjoyable to live in now.

Various Ways to Use an Unsecured Home Improvement Loan

An unsecured home improvement loan gives you money to fix up different areas of your home. You may have already borrowed money to buy your home so why not borrow some more money to make sure you get it in perfect shape for you? Using these types of loans can be a convenient way to pay for repairs and renovations. An unsecured home improvement loan is just a personal loan option that has a fixed purpose for home repair.

How to Find an Unsecured Home Improvement Loan

With an unsecured home improvement loan, you qualify for a certain borrowing amount, interest rate, and repayment terms based on your credit profile. These are available from many banks, as well as online lenders. Different lenders will have different options and no two lenders are alike. Different lenders will also allow you to borrow varying amounts. You may need to borrow more for bigger home projects, such as building a pool.

You can find this type of loan online, here, on Loanry. Our partner Fiona presents you with credible lenders you should definitely consider when loan shopping.

Applying for an Unsecured Home Improvement Loan

When applying for an unsecured home improvement loan, there are some tips you can follow.

Apply before You Need to Start Any Improvements

It’s a good idea to start planning ahead and apply for a home before you plan to start improvements. Timing and paperwork may take longer than you think so start the process at least 30 days in advance.

Determine How Much You Need

Consider the project amount and be sure to leave some room for error. Keep your budget, the total loan-to-value ratio, and how long you want to pay in mind. Don’t take out a loan that is going to strain your finances to make just cosmetic improvements. Don’t go into foreclosure just so you can have a nicer kitchen.

Determine the Preferred Loan Term

Consider your budget and how quickly you can pay off the loan.

Get Prequalified

When you get prequalified, you can find out what your interest rates will be so you can compare what different lenders can offer you. You can get prequalified with multiple lenders but you want to make sure they are using only a soft inquiry. Multiple hard inquiries can ding your credit score.

Consider Your Eligibility

While you are getting prequalified, you may want to consider your eligibility. Consider how qualified you are for the loan. Not only should you consider your credit history but also the loan-to-value ratio and the debt-to-income ratio as important factors in qualifying for the best rate and approval.

Using an Unsecured Home Improvement Loan

You can use an unsecured home improvement loan for a number of things, including painting the home, kitchen remodels, replacing the roof, and more. If you choose the right project then you can have an investment that will pay off in decades of personal enjoyment, as well as improved resale value.

Kitchen Remodels

Many people consider the kitchen to be the heart of the home and any improvements in this room can pay off. You may expect to recoup 60% to 120% of your investment on a remodel, as long as you aren’t going overboard. You don’t want to make the kitchen much fancier than the rest of your house or the rest of the kitchens in the homes in the neighborhood. One of the best things you can do for a kitchen remodel is to replace old appliances with energy-efficient models. Not only are these appliances better for the environment but they can also help you save money since they use less energy.

Bathroom Additions

If your home has one bathroom then you can make good use of your investment when you add another one. If you are looking for space in your home for an extra bathroom, look at underutilized spaces. Consider other spaces, such as areas under the stairs and closets. If you want a half bath, you need about 18 square feet but if you want a full bath, you need between 30 to 35 square feet. The cost of adding a bathroom will depend on the type of accessories and additions you want.

Reinventing a Room

Adding square footage to the home with a new room can be a very expensive project. Although you can recoup some of the investment, the cost can quickly get out of control. Instead, you can reinvent existing spaces to save money. For example, convert the attic into a bedroom or finish a basement. Homeowners may be able to add small apartments in or over the garage, which can be rented out as a room. Before you start, think about how you and potential buyers can use the space. Versatile rooms will have great appeal for potential buyers. Basements work well as game rooms or second living rooms. Some people even turn this space into a small apartment for a tenant or aging relative. Attics can work well for game rooms.

Energy-Efficient Windows

Buyers will shop for energy efficiency in mind so anything you can do to make your home more energy efficient is best. Old drafty single-pane windows are a major turn off. You can expect to recoup a lot of the cost when you invest in energy-efficient windows. There can even be different available rebates and offers in your area.

Deck Addition

Adding a deck can help increase the value of the home. Outdoor living spaces are becoming more desirable, especially as people are favoring staycations. If you make your backyard and deck more appealing, your house can be more appealing to any prospective buyer and you can also enjoy it. The cost of adding a deck can vary widely. And it will depend on the size and the bells and whistles you want added.

Energy-Efficient Insulation

If your home lacks any basic insulation and has old doors that let the cold and hot air escape the home then this can be a problem. Homes that don’t have the best energy efficiency in mind cost more to maintain and live in. Updating the home to save energy may not cost a lot of money and can make a big difference.

Basic Updates

Basic updates add some of the most value to your home. Fix the roof if it’s leaking, keep the paint fresh, and replace wood that rots. Get rid of any mold that you find. These types of chores can keep your home from deteriorating over time.

Upscale Garage Door Replacement

This may not be an exciting upgrade but when you replace your current garage door with an upgraded model, it can yield you about 98% in recouped costs. Some of the best garage doors are made from durable materials, such as wood composites, steel, aluminum, and high-performance additions, such as energy-saving insulation and glazing. Wood may be a classic choice but it’s not very weather resistant.

Updated Stone Veneer

Replacing the vinyl siding on your home with stone veneer in areas like the entryway can be a big curb appeal boost for the home.

Home improvement projects can extend the life of your home so you are less likely to pay for privacy repairs down the road. For example, when you replace the gutter and the roof, you could prevent future water damage and extend the life of the home’s exterior components.

You may think you can save money on your projects by doing some of the work on your own but it may not always be the best, especially if you don’t have a lot of experience in home improvement. You could try DIY if the project is small enough for you to learn quickly and you are okay with the project just being good enough. There is a chance that the project won’t turn out as well as the pro’s work if you do it by yourself.

The floor tiles can be uneven or a painted room may have some visible brushstrokes. It’s much better to hire a home improvement contractor if a mistake could have disastrous or serious consequences. Faulty electrical writing could cause a fire so anything with electrical needs shouldn’t be done by yourself. If the home improvement requires permits then you also want to work with a contractor.

How to Determine if a Home Improvement Project is Worth the Cost

One of the best ways to determine the value of a project is to look at the project’s cost versus its value assessment. Before you begin the home renovation project, consider some of these questions:

  • Have you budgeted for this projected?
  • Is the remodel a long-term lifestyle change or a temporary fix?
  • How long do you plan on living in the home?
  • Can you afford the renovation?
  • How long will the renovations last?
  • Will improvements add value?

It’s important not to guesstimate your renovation budget. There will be unforeseen costs along the way. Plan ahead by getting a clear view of how much you can spend. Talk to different contractors, compare the rates, and get priorities in check. The size of your project will largely be dependent on the budget. But it’s important to remember that sometimes a quick fix can cost more money over time than a larger renovation that could solve a big headache. For example, if there is mold growing on the first floor tile because of a leak, replacing the grout could solve the problem in the short term. However, in order to keep the mold away for good, you may want to completely redo the tile and upgrade its quality. It may even be worth it to replace the pipes and drain as well.

Another thing to consider is if you are staying in your home long term or prepping it for sale. If you want to put your home on the market in the near future then make sure any renovations appeal to buyers. A big misconception is that major home improvements will equal more money in the final sale. But that’s not necessarily the case.

You want to consider the value of renovations in your area and not just the national average. Energy efficiency projects may have more value in colder climates. A swimming pool may do nothing to help buyers. However, in warmer regions, the pool can actually attract buyers to the home. Areas of your home, such as an office, may fit your lifestyle but pouring money into the home office may not help you if you have buyers who want to use the office as a playroom instead.

It can be hard to live through renovations, so it helps to have some extra money set aside to stay in a hotel or plan a day out if you need to spend several hours away from home while contractors are working.

Things to Look for When Choosing an Unsecured Home Improvement Loan

You always need to shop around when looking for a consumer loan. The right home improvement loan is only going to be as good as the lender offering it. In order to figure out if you have the right lender, there are some things to keep in mind.

Loan Type

While you may be looking for an unsecured home improvement loan, loans can also come secured. Unsecured loans require a check of your credit history and secured loans will require you to put up some sort of collateral.

Eligibility Requirements

This is one of the first things you want to check once you figure out what loan type you want. Some lenders charge application fees so don’t waste time and money applying for a loan you won’t qualify for. Research ahead of time to learn about the minimum qualifications and only apply for lenders that will likely grant you the loan. Home improvement loans for bad credit are available if you do enough research to find lower eligibility requirements.

APR

When you are looking at different lenders, check the APR. This is the interest rate plus the origination fee for borrowing. To find the best APR, you need to make sure your credit score is at its best. While there are home repair loans for bad credit, these don’t have the best APR. You may see a lender that offers a low promotional interest rate. Keep in mind the promotion period will eventually end and then, depending on your credit score, this low APR could climb into double digits.

Repayment Terms

Personal loans will typically be given for one, three, and five-year repayment terms. Some lenders may offer longer terms. The longer your term, the more interest you will pay. Use a loan calculator to see how a longer repayment term will affect your interest payments.

Fees

These can include late fees, processing fees, and closing costs. Lenders can roll the closing costs into the loan balance instead of requiring payment at closing but it helps to know all the fees you could be facing.

Other Benefits

Lenders can offer plenty of different benefits so you may want to prioritize lenders that allow you to use a cosigner or a lender that gives better repayment protections. Whatever perk is important to you, be sure not to sign on the dotted line if you don’t get it in writing.

Should You Finance Your Home Improvement Project?

If you are already thinking about financing your home improvement project with an unsecured home improvement loan then you likely have considered if it is the best course of action for you. If you haven’t yet, then take the time to consider whether you should borrow money for this endeavor and if there are alternatives you should try first. For example, if your project only needs a few thousand dollars and you already have good cash flow then you may just want to save up for your project instead of adding to your debt. If you don’t have the best credit and may not get a favorable rate then consider asking a friend or family member for a low-cost loan or work on improving your credit score. Whatever you decide, make sure to weigh your options so you can pick the best one for your specific financial situation.

Pros and Cons of Home Improvement Loans

Unsecured home improvement loans are beneficial for making upgrades and repairs that can help increase the property value. If you are strategic about home improvements then you can increase the value of your property so much that the loan can pay for itself. The loan also allows you to jump on some much-needed repairs instead of having to wait until you have enough money saved up. If you wait to make certain repairs then the damage can be worse and can end up costing you more in the long run.

Even with all the pros, there are some cons of unsecured home improvement loans. If it’s a poor or fluctuating economy then the interest rates can be higher, which means the loan can cost you more in the long run than any increases to the value of your property. This is also true if your credit score isn’t great enough to get a good rate. Shoddy work on the part of the contractors you hire can also end up causing the home to lose value. So it’s necessary to research the best ways to spend the money you have from an unsecured home loan to minimize the risk.

What about Emergency Home Repairs?

An unsecured home improvement loan can be used for regular home improvement projects but you may need financing at some point for emergency home repairs. While you can use an unsecured home improvement loan for emergency repairs, there may be other ways to finance these costs.

Homeowners Insurance: Before you pay for repairs out of pocket, you should see if the damage is covered by your home insurance policy. You may only need to pay your deductible and can save a significant amount of money.

Government Assistance: Depending on what repairs you need, you may qualify for government assistance. This will depend on the location, age, and income.

Disaster Relief: If your home suffers damage as a result of a natural disaster then you could get funds from the Federal Emergency Management Agency. These funds usually only cover small repairs that ensure safe living conditions.

Nonprofit Organizations: Depending on the circumstances, there are also non-profit organizations that can be willing to help with some home repairs.

Getting the Most Out of Your Unsecured Home Improvement Loan

In order to get the most of your unsecured home improvement loan, there are some things to keep in mind.

Stick to the Budget

Since you get a set amount from your unsecured home loan, you need to know what the cost of your project will be before you apply for the loan. Get estimates from professionals so you can establish a realistic budget. Don’t forget to add some more to your budget in order to estimate any overruns.

Understand the Difference between ROI and Equity

Equity is the value of the home above your existing mortgage. ROI is the return on the investment of the project. Home improvements can increase your equity but may not return 100% of what you spend. If you spend $20,000 for a kitchen remodel, it may only increase the value of your home by about $16,000. Keep these numbers in your mind if you only plan to live in your home for a few years.

Balance Current Needs with Resale Value

You may need to make home improvements that improve your current comfort in your home and personal needs for any daily living. However, personalizing too much can reduce the ROI since other potential buyers may not share your same taste.

Alternatives to an Unsecured Home Improvement Loan

If you are hoping to finance your home improvement projects but don’t necessarily want to get an unsecured home improvement loan, there are other options.

Mortgage Refinance

If you financed your home a while back and the interest rate has gone down for the current market then refinancing your mortgage lowers your current rate and your monthly payments. This allows you to free up some cash for any home improvement projects you want. A cash out refinance allows you to tap into some of the home’s equity.

Lenders will typically let you borrow enough money to pay off the current mortgage and take out some cash, which will usually be up to 80% of the home’s value. You do want to think carefully about choosing this type of financing. Remember, you are using the home as collateral. You are financing short-term costs with some long-term debt, which may add interest and other fees, in addition to the price of our renovation. This may only make sense if you are improving your home in ways that can increase its value.

Home Equity Line of Credit (HELOC)

This is another way to borrow against the current value of your home. Unlike refinancing, it doesn’t pay off the original mortgage. Instead, you get a line of credit up to a certain value of your home. HELOCs come with a repayment period and draw period. During the draw period, which can last 10 years, you spend the money you want in your credit line. Monthly payments cover the interest and a bit of the principal. During the repayment, your monthly payments are usually higher because more is included toward the principal.

Home Equity Loan

With a home equity loan, you can tap into equity again without refinancing. Instead of getting a line of credit, you just receive a lump sum of money. This could make sense if you don’t want to refinance because your mortgage has a low-interest rate. The interest rate is likely to be higher with a second mortgage.

Title 1 Home and Property Improvement Loan

A loan that is federally insured may be a better bet. Especially if you only need to borrow a smaller amount. You can borrow the money unsecured if it’s lower than $7,500. If you need to borrow more than that then you may need some collateral set up.

Credit Card

A credit card can allow you to make purchases if you don’t have the cash upfront. Certain credit cards will give rewards for every dollar you spend. You do want to make sure you can pay off your balance since credit cards usually come with much higher interest rates than other financing options.

Save Up

Saving up so you can pay cash can require patience and time. But if you can pay for your renovations upfront, it eliminates any financing charges. Having a certain amount of cash you can spend makes it easier to stay within your budget.

Final Thoughts

Getting an unsecured home improvement loan can be a great way to finance some improvements in your home. Applying for an unsecured home improvement loan works the same as many other loan types. There are a number of home improvements that you can do with the money from the loan. Some improvements may make more sense than others based on the projected ROI. You can make sure to use the money quickly by doing some research in your area. And determine which home improvements are the best for increasing the value of your home.

How Do Home Improvement Loans Work: Build Cautiously

A home is one of the greatest investments that serve as a status symbol. However, it needs to be well maintained to increase in value. That includes performing necessary repairs, roof replacement, fixing some damages, or updating the plumbing. You also need to do some upgrades like renovating the kitchen, installing a swimming pool or even buying a washer and dryer.  Perhaps you don’t have enough cash to cater for the cost of these renovation projects. In this case, you can fund them through a home improvement loan.

What Is a Home Improvement Loan and How it Works

Home improvement loans allow the borrower to update his home, under the loan terms set by a bank or any financial institution providing the loan.

Note that a home improvement loan isn’t the same as a home refinance loan or home equity loan, so no room mistakes. Those types of home loans are mortgage-loan-oriented, meaning that they are longer and involve large loan amounts. Like most home loans, this type of financing is secured through the liquidity in your house as capital.

Features of a Home Improvement Loan

  • A home improvement loan features large lending amounts, ranging from $50000 to $100000
  • It has varying interest rates, mostly as low as 3% if you have excellent credit and more than 18 perfect if you have bad credit.
  • Based on the contract terms and loan amount, the payment duration of home renovation loan payment might be short as 12 months, or even longer as seven years.
  • Applications for a personal home improvement loan is usually vetted fast and has high chances of approval. You will have the cash in your account with 24 or 48 hours of approval.
  • Credit unions, banks, and online lenders offer home improvement loans

How to Obtain a Home Improvement Loan

Creditors issue unsecured and secured loan options for home improvement loans. The creditor will evaluate your credit score, whether you have enough equity in your home and the kind of renovation project you intend to do with the loan. Some of the home improvement projects will increase the value of your home and look attractive to creditors. They include:

home improvement loan

  • Bathroom and kitchen upgrade
  • Installation of a deck or swimming pool
  • Air duct replacement or plumbing
  • Foundation and slab repair
  • Septic or well repair/replacement
  • Room additions
  • Siding and window replacement
  • Replacement or installation of insulation units
  • Garage, attic or basement finishing

Are You Eligible for a Home Improvement Loan?

Typically, home improvement loans are accessible to anyone. However, the loan amounts, terms, and interest rates will vary depending on your personal financial conditions. Therefore, it’s essential to do your homework to find the best option that fits your needs.

Generally, a personal home improvement loan market is used by an individual or joint property owners with high incomes. That is because they are considered as a lower risk since they have better financial qualifications for repaying the loan. With that being said, the best interest rate with a great payment plan is given to applicants who fit this category.

What Factors Affect the Interest Rate on Your Home Improvement Loan?

While they might not have access to the greatest home improvement loans accessible, even borrowers with bad credit scores can qualify. However, they will get less flexibility in the forms of loans available. And the loans are offered at a high-interest rate.

Bear in mind that the advertised interest rate is not the guaranteed rate you will get. Lawfully, creditors only need to offer 51% of candidates this advertised rate. Therefore, it’s vital to remember the following factors to assist you in getting the lowest interest rate.

  • Credit history: even though you meet all the eligibility criteria, your credit score will affect your rate. For this reason, make sure you request for your credit history
  • Your age: you need to be over 18 to apply for home improvement loans. The lender set their cut off period. It’s important to remember that the age set that commonly searches for home improvement loans ranges from 65 to over 75 years. Note that the most cut off duration falls within the age of 60 and 74. For this reason, it is vital to shop and make sure you are applying with a creditor who can accommodate you.
  • Your bank account: if you have a savings or current account with your lender or bank you want to get a loan from, they will offer you good rates since you are a loyal client.
  • Your income: providing accurate details when disclosing your income will assist the creditor in knowing if you can manage to repay the loan by considering your monthly outgoings.

Advantages of Home Improvement Loan

Let’s look at some of the benefits of a personal secured home improvement loan.

Low-Interest Rate

One of the greatest benefits of obtaining a home improvement loan is a fixed and lower interest rate. If you get a personal loan, you have to pay a high rate of interest. Moreover, a home improvement loan has a fixed rate. Having a lower rate of interest on a high loan amount for a longer duration allows you to save a lot in the long run. Additionally, paying lower interest rates for longer duration tends to be easy and rewarding.

Lower EMIs

When you obtain a loan on a low-interest rate for a longer duration, the EMIs amount will be lower. That means you will pay a low EMIs each month compared to obtaining a loan on a higher interest rate. If you earn limited income, obtaining a loan that attracts a lower interest rate and with lower EMIs will be beneficial to you. So, obtaining a home improvement loan is the best alternative to help you stick to your monthly budget

Minimum Paperwork Required

This type of loan requires less documentation if you have obtained a home improvement loan from the same lending institution. Some banks will do a physical check pf the home before giving out the loan. Others will use your previous loan history and details with less documentation for the disbursal of the funds with the same bank.

However, if you are securing the loan for the first time, you will have to pass through the entire process of applying for the home improvement loan and disbursal regulations.

Flexibility to Usage

Once you have obtained a home improvement loan for your remodeling project, you can use the funds to expand some rooms in your house. You can opt to construct a new balcony or expand the covered area of your home. Additionally, if you have enough cash for the renovation and expansion, you can use the loan to add new cabinets in your rooms, upgrade kitchen cabinets and doors. This type of a personal home improvement loan gives you the flexibility and freedom to utilize it for a range of improvement projects.

Many Lender Options

When you want to secure a personal loan, you will have limited options. Also, not all creditors will approve your unsecured loan if you have a bad credit history. If you’re applying for a secured loan, many lenders will be willing to finance your home improvement projects. Additionally, you will get a high loan amount at a lower interest rate.

Disadvantages of Home Improvement Loan

Numerous factors affect the amount you can borrow and the interest rate. But in most cases, best home improvement loans are offered to those lenders who can repay the amount within 3-5 years. Therefore, if you want to get a loan and repay it within a short duration, you will be subjected to a high-interest rate.

Like any time you are applying for a personal loan, your credit score and financial history will be considered. So, if you have bad credit or unfavorable financial circumstances, you might be regarded as ineligible. That means you will have to pay high-interest rates.

Another disadvantage of securing home improvement loans is that it will affect your credit report by leaving some records. So, before you opt to apply for several loans at once, it’s good you do your homework. And make sure you are realistic with the loan applications. Several credit requests in a short duration will make you a high-risk potential to creditors.

Note that some risks are involved when it comes to securing any loan. For that reason, it’s essential to conduct extensive research before seeking financial advice. With any loan amount, you need to be sure that you will pay back within the agreed time.

Options for Home Improvement Loan to Consider

Let’s discuss some of the personal home improvement financing alternatives together with their pros and cons to assist you in finding the one that works best for you.

Home Equity Loan or Line of Credit

The amount of line of credit you get can be attained by subtracting the total amount you owe on your home from the amount an evaluation claims its worth. For instance, if your house values $650k and the amount you owe on your home is $300k, your home equity will be valued at $350k.

You can get equity in your house by obtaining a home equity loan or a HELOC (home equity line of credit). Your home will serve as collateral when securing a line of credit. That means if you fail to repay the loan, the creditor will be forced to foreclose your house and sell it off to recover the loan.

The benefits of a line of credit include that they are an easily accessible source of funds if you have equity in your house. Additionally, the rate of interest is lower compared to those of unsecured loans, and the interest is not tax-free.

Difference Between a Home Equity Loan and HELOC

Home Equity Loans

Home equity loans allow you to obtain home loans as one lump sum. The FCT (Federal Trade Commission) claims that the majority of a creditor will enable you to take out up to 85% of the equity in your house. When it comes to costs, these funding come with a fixed rate. That means that you pay back the loan amount over a predetermined duration with the same monthly installments. Note that there are other costs, such as closing expenses. A home equity loan is a good alternative if you want funds for your home improvement in advance. And if you want a fixed monthly installment.

HELOCРезултат слика за HELOC loans infographic

HELOCs are types of line of credit that has similar features as that of a credit card. An equity line is the least costly lending option since you can access the cash as you need it. Additionally, you won’t be forced to pay interest until it’s needed.

The FCT claims that your line of credit might be up to 85% of your house’s evaluated value minus the total amount owed on the initial mortgage. Rather than a fixed rate of interest, the HELOC uses a variable APR. That means your payment will not be constant.

Other terms like the duration you can draw from a HELOC, terms of repayment, can vary from one creditor to another. For that reason, do your research and carefully evaluate the offers given by various companies.

Cash-out Refinance

Another great home improvement alternative is a cash-out refinance. Instead of securing another mortgage, you substitute your existing mortgage with a larger and new one.

For instance, if you have a mortgage of $300k and your home appraises for $550000, you can secure new financing of $400000, hence repaying the original debt and cashing out $100k for your renovation.

The amount you withdraw will depend on various factors like the lender you choose, your credit history, and your home equity. Other factors to consider when opting for a cash-out refinance comprises:

  • You can get a lower rate of interest than what is offered via home equity loans
  • This option attracts some closing costs
  • Private mortgage insurance (PMI) is required if you secure over 80% of the value of your home

These loans are good since you will be managing one mortgage, and you can always get the cash you need, and the rate of interest is attractive. The only downside of these loans is that they are costly, your acts as collateral, and you might need a PMI.

A Personal Line of Credit and Personal Loans

A personal line doesn’t require collateral, but they are approved depending on your credit report. The only difference is that the line of credit allows you to secure a loan as required for a specific duration. A personal line of credit discourages homeowners from borrowing more than they require by enabling them to access the money as needed.

Personal loans allow homeowners to obtain unsecured loans that are utilized for any function. Borrowers can utilize a personal loan to pay for a holiday, consolidate a loan, start a business, or even pay for a home renovation project. Like a personal line of credit, you don’t need collateral to obtain a personal loan. So, your house won’t be a risk. If you want a lower interest rate and large loan amount, it’s recommended you get an unsecured loan. Loan fees and borrowing minimums are low, and you can obtain a personal loan without home equity.

Traditional Home Improvement Loans

A traditional home repair loan allows homeowners to get a lump sum to help them complete renovation projects. Some of these projects include kitchen & bathroom remodeling, installation of a swimming pool, repair or replacement of an HVAC unit. Convectional banks, online lenders, and credit unions provide home repair loans. Since this is an unsecured loan, the homeowner does not need collateral to obtain the loan. For this reason, these loans attract a high-interest rate compared to a home equity loan.

Additionally, the rate of interest will depend on the homeowner’s credit rating, loan duration, and loan amount.

Peer-to-peer Loans

Peer-to-peer loans allow you to get an unsecured loan for your home renovation project. The loan will be financed by multiple investors who offer small loans amounts to many borrowers to diversify their risks. You will be required to pay once a month, like any other loan.

Like with other creditors, your rate of interest will depend on your credit report, the amount you want to borrow, and repayment duration. Since the loans have short terms of repayment of 3-5 years, you will pay the debt fast and avoid paying interest for many years. Additionally, you can get a peer-to-peer loan even if you have bad credit.

Local Government Loans

Some local government provides funds to assist homeowners, especially those the elderly and low-income earners to pay for renovations. They include:

Boulder, Colo

This city gives out loans at an interest rate of 1% or 3% on a maximum of $25000 for single-family houses that require safety and health repairs or energy conservation upgrade. The borrower must have less than $50000 worth of properties. The loan can be repaid in 15 years or until the house is sold.

St. Paul, Minn

Based on revenue limits, homeowners can apply for loans if up to $50000 at an interest rate of 4%. The loan can be used to add a new room, garage. Or buy a new furnace or installation of the HVAC unit, or even replace the torn roof. Another alternative is a $1000-$25000 with overdue payment for a necessary and essential renovation that affects safety, energy efficiency, accessibility, and habitability of a home. Note that these forms of loans are not due until the debtor transfers title, moves, or sells. They might be waived after 30 years of continuous ownership and occupancy.

Note that this kind of program is not accessible everywhere. Therefore, make sure you check with your local government to find out if they are offered in your town.

FHA Title I Property Improvement Loans

Borrowers with limited home equity can apply for an FHA Title I loan for their home renovation projects. Some of these projects include accessibility enhancement and energy conservation improvement. The funds can be utilized for luxurious products like the installation of outdoor fireplaces and swimming pools. However, loans below $75ooo are unsecured. And the highest a borrower can get is $25000 for 20 years to renovate a single-family house. Note that the lender is allowed to set an interest rate. You must look for an FHA-certified Title I creditor to secure this kind of loan. Like with all types of loans, you must have stellar credit and show the capability to pay the debt.

0% Introductory Rate Credit Card

For homeowners with a good credit score, they have a chance to get accepted for a new credit card that doesn’t attract any interest on new transactions for 9-18 months. Some of the credit cards with such offers are Chase Slate that offers 0% APR for 15 months and no annual fees. Capital One QuicksilverOne offers 0% APR for nine months and $39 annual fees.

However, you need to make a minimum payment every month to maintain the 0% rate. You must have a viable plan to pay back the complete amount you obtained before the introductory duration elapses. This will help you avoid paying high interest on the unpaid amount.

If you experience hardships paying the debt in full, getting your money in order, or beating deadlines, this is not ideal for you. This option can be cheap for debtors who are detail-oriented, disciplined, and spend wisely. Nevertheless, it might be impossible to borrow a large amount with a credit card as you can with cash-out finance or home equity, based on the amount of home equity and the state of your credit history.

How to Obtain Home Improvement Loan for Bad Credit

Don’t allow your poor credit rating to prevent you from applying for home improvement loans for bad credit. Getting home repair loans for bad credit can be challenging, but it is possible. If you have a credit rating of less than 620.

When your home requires improvement, there are different ways of getting funding to complete the project. However, the process might require some effort from your side. Here are some of the available options.

Try Government Loans

Резултат слика за home improvement loans infographic

The Department of Housing and Urban Development (HUD) provides a range of programs to help homeowners get loans for their home improvement projects. For instance, the Streamlined 203(k) loan program offered by FHA gives homeowners a chance to fund up to $35000 into their mortgage to renovate, upgrade or improve their houses.

The FHA Title 1 loan assists those homeowners who can’t be approved for a home repair loan to get the cash they need to upgrade their property.

Try Private Lenders

There are numerous private creditors who help borrowers with poor credit to secure home improvement loans. In most cases, borrowers with bad credit looking for a home repair loan might be a perfect fit for creditors. That is because the lender is confident that these borrowers will use the funds appropriately.

Get a Co-Signer

Another alternative for borrowers with unfavorable credit is getting a co-signer. In this case, another person signs onto the loan to help the borrower get a low-interest rate. The majority of people use relative and close friends as co-signers.

Consider Alternative Lending Opportunities

This alternative entails informal lending practices like borrowing cash from peers. You can also get a loan from micro-lenders who are ready to help you with incremental loans. You can also visit a local credit union to find out that they can assist you in getting funding despite your questionable credit.

One of these recommendations may assist you in getting the funding you need to complete your home renovation project. However, be cautious since some creditors and loan programs offer high-interest rates for borrowers with bad credit. For that reason, make sure you do thorough research before making any decision.

One of the essential steps you need to get when finding home repair loans for bad credit is starting to repair your credit. Follow these steps and start amending your credit score steadily.

Evaluate Your Credit Rating

Examine your credit score and make sure you understand what it means. Request for a free copy of your credit history.

Identify Where You Need to Improve

The credit report has everything you want to know about your credit rating. So, make sure you carefully go through it to notice any errors or parts that require improvement.

Start to Repair Your Credit

In this step, you will need to make hard decisions like repaying your loan. You will also need to settle an overdue or unsettled debt. And not applying for any loan until you get a good score.

Final Word

So, you are now familiar with several options to get a home improvement loan. Next, you will need to weigh the benefits and downside to choosing the one that fits you. The moment you choose the lending option you want, start shopping around while comparing the offers you receive from several lenders. This will help you make sure that your renovation project will be cheap. When it comes to applying any form of a loan, make sure you understand all the loan terms used. This will help you understand what you are getting into.