home improvement loans

If you live in a rented apartment or house and your water heater stops working – or perhaps the heating – it would be enough to call the landlord to take care of the necessary repairs. However, when it is your name that is on the mortgage document, you have no one to call for repair or maintenanceAt least not if you don’t have the money to pay. After all, contractors don’t work for free. Therefore, here we will talk about useful home improvement loans.

To give you an idea of ​​what the owners of their “sweet home” face, let’s look at some figures. The average family in the United States spent $7,560 on home improvements in one year alone (2018). Of that amount, $416 went to pay for emergency repairs and the rest for replacements and refurbishments.

Although that amount may not seem like a big deal to you, it could be and even more so when we remember that the Federal Reserve published the results of a survey -also from 2018- that stated that 12% of Americans couldn’t afford a surprise $400 expense. Conclusion? Financing an unexpected repair can be very stressful, especially if you don’t have cash at the moment.

If this is your case, you may be considering ask for a loan to fix the house and thus be able to pay for the work in comfortable installments. If it seems that we have read your mind, congratulations! In this article we will focus on finding out what a home improvement loan is and when you should apply for one.

home improvement loans

What is a loan to remodel or repair the house?

Home improvement loans can refer to 1) a personal loan used to pay for home repairs or 2) another type of loan, such as a home equity loan. If you need money to cover improvements, conditioning or repairs to your home, here are some that you should consider.

Which loan is better to remodel the home?

The best credit for home remodeling It will depend on your own financial situation, the amount of the repair and, of course, your credit score.. Explore these options and compare them to each other to find the best alternative:

Personal loans for home improvements

When you apply for a personal loan it will be your credit that determines the amount of money you could receive and the interest rate. The better your credit history and your score, the more likely you will have that application be approved and – the best thing – at a very competitive interest rate.

The good thing about personal loans is that they are usually unsecured, which means, in other words, that they are not tied to collateral, like your house or the family car. In addition, they work with comfortable payment terms. In the event that your personal loan is approved, you will receive a fixed amount of money that you can repay in a year or perhaps more.

However, you can apply for a personal loan through any financial institution of your choice and this is what makes them a homeowner’s favorite. At the end of the day, you have the option of going to the bank, a credit union near your home or even going to consumer financing companies, online lenders, etc.

Note: An unsecured personal loan can be a very attractive option to cover the costs of home repairs, mainly because you will not have to put your house or any other property that you have as collateral. So if things go wrong and you fall behind on your payments, you won’t risk losing your home, although your credit score won’t.

Another factor that makes it a good option is that, depending on your credit score, you might be able to get a very good interest rate; even much better than your credit card.

Home Equity Loans for Home Improvements

Your own house can become the vehicle you need to request financing and thus repair or even remodel your home. A home equity loan is a type of secured loan in which your property acts as collateral.

Therefore, the limit of money that you could receive will be closely related to the price of your home -if owned- or with your equity -which is the current value of your property minus the mortgage debt- if you have acquired it with a mortgage.

Homeowners are generally limited to asking for no more than 85% of the value or home equity. For example, if your house is worth $350,000 and your mortgage balance is $250,000, you would have $100,000 of equity. This means that the most you should borrow is $85,000.

Note: Since the amount of a home equity loan is disbursed as a lump sum, asking for it might make more sense if the repair is too big or importantsuch as a major overhaul, remodel, or payment for a new roof. Yes indeed. Keep in mind that home equity loans may be subject to certain fees and if you don’t pay, you could lose your home. Advantages? The interest rate may be lower than personal loans and the repayment term may be much longer.

Home Equity Lines of Credit

A home equity line of credit – known as a HELOC – is similar to a home equity loan. So is it the same? No. In fact, it is structured in a slightly different way. However, we could say that as with a home equity loan, with this option your home will also be pledged.

Now, the main difference would be this: instead of receiving a lump sum of cash, the bank will grant you a line of credit. The good thing about credit lines is that they are much more flexible, since you can borrow only what you need during a certain period of time.

Generally, homeowners who qualify for this type of line of credit can borrow the same 85% of their home equity. Keep in mind that HELOCs may establish a withdrawal period, which is a period of time previously established by the lender. During this period, you will be able to borrow money from the line of credit. When the withdrawal period ends, you may be able to renew the line of credit if you wish.

Note: It could be said that HELOCs are similar to credit cards because they will allow you to borrow different amounts of money -up to the limit set by the institution- and pay as you go. Our recommendation? Never lose sight of your budget. If you go overboard and borrow more money from the account, you would be putting your home at risk.

Should I ask for a loan to condition the home?

The answer to this question is complex and may not be the same for all consumers. Why? Because deciding if you should request a loan to condition, remodel or repair the home comes down to the analysis of several factors:

What do you need the money for?

Is it something that cannot be postponed? A broken pipe or irreparable heating that must be replaced before the arrival of winter are usually expenses that have to be made yes or yes. Instead, remodeling the first floor of the house into an open space environment can wait.

What is your current financial situation?

Check your budget and make sure you can cover the monthly payments of any loan you want to request without putting your pocket – or your home – at risk. If you’re really tight and it’s not an emergency repair, it’s best to wait. Think that instead of taking out a loan, you could put the extra money in a savings account so you can pay for the repair in the future.

What interest rates do you qualify for?

A stellar credit score could make you enjoy the best and most comfortable interest rates in the market. But if your score is low, you may not be so lucky. Once again, it will all come down to how urgent the repair you need is. Replacing carpets with a natural wood floor can wait, but a destroyed ceiling can’t.

How much money could you borrow for home improvements?

This will depend on your credit score and also the type of loan you apply for.. In loans and credit lines with mortgage guarantee, the normal thing is 85% of the liquid value of the house, which can be its market value -in case you have already paid 100% for the house- or of the equity, which is the value of the property minus the current debt on your mortgage.

In the case of personal loans, the amount will be calculated based on your credit score and the analysis of certain factors, such as your salary, for example.

How can I repair my house without money and without taking out a loan?

If you don’t want to apply for a personal loan or home equity line of credit, you may have several options up your sleeve. One of them would be review your insurance policy to find out if all or part of the damage is covered. If not, we leave you with other alternatives:

Credit cards

Credit cards can be a tempting option, especially if you already have one on hand. If you qualify for an introductory offer at low interest rates – or better, 0% APR– you could pay for the repair and you would have all that offer period to pay the total amount requested.

Yes indeed. Keep in mind that maxing out your credit cards could affect your score. The amount of debt relative to your credit limits — called the credit utilization rate — accounts for 30% of your FICO score.

If possible, always try to keep the balance on your cards below 30% of the approved limit.

community programs

Check with your local Department of Housing and Urban Development office – or visit their website – to see if they offer home improvement grants or if they work with any community programs related to it. The program HOME Investment Partnerships Program, for example, could help you cover expenses if your family is low-income.

Refinancing with cash withdrawals

A cash-out refinance is quick and easy to apply for. It is about using the liquid value of your home to refinance your very own mortgage loan. This would allow you to establish a new and higher mortgage. You could receive the difference and use it in the repairs you need.

Just remember that as simple as it sounds, it’s important to do the math beforehand., since one of the dangers of opting for this option is that you could end up with a higher interest rate than before. You may also have to pay more for closing costs.

In short, home improvement loans

We have already shown you the most popular options to request a loan for the improvement, maintenance, repair or refurbishment of your property. However, the decision rests with you. As we said before: there is no correct answer when we talk about this topic, only the most indicated according to your own current situation..

Remember to analyze all the factors before deciding on one option or another. What factors? Well, the net value of the home or equity, your credit score, the cost of the repair, your monthly budget and the importance of the repairs that you need to make. Determine if the work can wait because it’s not an emergency or if it needs to be done right away.

So that a situation like this does not surprise you again with empty hands, We recommend creating an emergency fund that has about 3-6 months of family income. This could give you the ease of paying for home repairs – even a remodel – without having to go to the bank.

Starting to save is very easy. Start by setting aside a chunk of your paycheck and every extra payment you receive, like bonuses. Open a top-yield savings account and put your money in it to grow over time.

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