Products available for
home improvment vary widely. You may do an Home Equity/Line of Credit, a closed-end 2nd Mortgage , an after-value loan, a
first mortgage, or a host of other equity products. What you
want to accomplish, how long it will take, how much equity you
currently have available and how much you can afford are among
the most important considerations when choosing a loan
product.
While trying to
accomodate what you want to do, you must also be aware of what
you qualify to do. The guidelines for these products are
"lender specific." This means that there are literally
thousands of lenders to help you with your project, but each
will have their own list of qualifications. All lenders will
be looking at your credit, income, property, assets and the
improvements you plan to make.
It is absolutely
critical that you not begin your project before you obtain
financing. It is nearly impossible to find financing once
you've torn down walls, stripped floors or dug holes (just to
name a few starting points). Explore several different lending
solutions and make sure you have a long term plan for when
your project is complete.
The purpose of
the home improvement loan
The home improvement
loan is designed for exactly that – to make improvements to
the home. This can mean a wide range of things. Some examples
of projects completed with the money obtained from a home
improvement loan include:
• Adding or enlarging a
room
• Building a deck
• Enclosing a patio
• Funding
a swimming pool
• General repairs
• Repainting and
redecorating
• Updating plumbing
The home financing
situation
The interest rate, total loan amount and length
of loan life are going to be dependent upon the lending
institution and the current real estate market. They will also
depend upon the details of the first mortgage, the exact
purpose of the home improvement loan, borrower credit history
and the value of the home. In general, the home improvement
loan is a short-term loan which requires only interest-only
payments during the period of home construction. The interest
rates are usually lower than those of a private loan such as a
line of credit but vary according to all of the above
factors.
Using the home to profit from the home
The home improvement loan uses the home as
equity for financing of the loan. With proper repayment of the
home improvement loan, it is actually possible to profit off
of the loan. This works when the value of the home improvement
in terms of the rental or real estate market brings in more
money than the total cost of the loan to the borrower. Because
real estate market values frequently rise, this is often the
case with a good home improvement
loan.
