• 15 Nov, 2023

Don't start your home improvement project until you've ticked THIS checklist!

Are there 5 types of loans for home improvement?

‘Tis the season! We are almost nearing the holidays and if you’re taking up home improvement projects to celebrate your holidays and start the year afresh, keep reading the blog as we are about to deliver a checklist for your home improvement needs.

Make your home improvement project a success and spread the season’s greetings with joy. So, don't start your home improvement project until you've ticked THIS checklist! Let’s get started.

Why do we have loans for home improvement?

Let’s understand the need for home improvement loans with an example. Let’s say you want to prepare your home for the season’s celebration by cleaning the fireplace and repainting the walls. Where can you get the funds from?

That’s why we have home improvement loans in place. They help in offering funds for home remodel projects without breaking the bank.

How do loans for home improvement work?

Did you know that an average American spends around $18000 a year for home improvement?

• Well, it’s almost 2024 and it’s time to accept that these remodeling projects are often more expensive than we think and could be difficult to manage with just your savings and monthly expenses.

  
  

• A home improvement loan is a type of personal loan that is offered by lenders to finance all the home improvement or renovation projects that can’t be solely done by using an individual’s income.

  
  

• These remodeling projects help in upgrading the look and feel of your home and prove to be a good investment. The value of your home goes up and adds value during the sale.

  
  

• Certain home improvement projects can instantly increase the value of your home. These projects could be a new deck addition, installation of marble countertops, or renovation of an old property.

  
  

5 types of loans for home improvement

Yes, there are 5 types of loans that are used just to fund home improvement services. These loans provide financing options for all kinds of home improvement projects such as upgrades and repairs.

1. Personal loan

   
   

   • It is a form of unsecured debt and can be used to fund any expenses as per the borrower's needs. Personal loans are approved based on your creditworthiness and income stability.

     
     

   • As they are unsecured, these loans usually have higher interest rates than other types of loans.

     
     

   • If you have a stable income and a good credit score, this loan type could be one of your top choices.

     
     

   • Key features of personal loan:

     
     

     • →   Quick approval process.

       
       

     • →   Fixed interest rates.

       
       

     • →   Repayment terms typically range from 2 to 7 years.

       
       

2. Home equity loan

   
   

   • If you have built a good amount of equity in your home, you can use it as collateral to fund the home improvement services. This type of home improvement loan could be considered a second mortgage.

     
     

   • However, you must keep in mind that a home equity loan will add an additional monthly payment to your budget

     
     

   • Since you get a lump sum of money based on the equity you have in your home, these loans are suitable for projects with a fixed budget, like a kitchen renovation or a room addition, where the cost is known upfront.

     
     

   • Key features of home equity loan:

     
     

     • →   Fixed interest rates throughout the loan term.

       
       

     • →   Lump sum payment.

       
       

     • →   Repayment terms typically range from 5 to 30 years.

       
       

3. Cash-out refinance

   
   

   • Here you take out another mortgage to replace the current one by receiving cash in exchange. The new mortgage is usually higher than your current mortgage balance. You receive the difference amount in cash.

     
     

   • In addition to home improvement services, the cash received by taking out a new mortgage can be used for various financial needs.

     
     

   • Cash-out refinance is suitable for significant home improvements or when you want to consolidate high-interest debts into a lower-interest mortgage.

     
     

   • Key features of home equity loan:

     
     

     • →   Potentially lower interest rates than credit cards.

       
       

     • →   Extended repayment terms.

       
       

     • →   Utilizes home equity to determine the borrowing amount.

       
       

4. Home equity line of credit (HELOC)

   
   

   • A HELOC is a revolving line of credit that allows you to borrow against the equity in your home. It operates similarly to a credit card, with a predetermined credit limit.

     
     

   • They act like a second mortgage and instead of receiving a lump sum payment, you can borrow whenever needed during the draw period.

     
     

   • Once the repayment period starts, you repay all the borrowed amount with an interest amount. HELOCs usually have adjustable rates of interest, and the monthly payments vary.

     
     

   • Key features of home equity loan:

     
     

     • →   Variable interest rates.

       
       

     • →   Draw period followed by a repayment period.

       
       

     • →   Interest is only paid on the amount borrowed.

       
       

5. FHA Rehab Loan - FHA 203(k)

   
   

   • With an FHA rehab loan, the mortgage can be bundled with all the home improvement costs into a single loan. The FHA rehab loan is backed by the FHA, and homeowners need not apply for two separate loans or pay closing costs twice.

     
     

   • Individuals who want to make certain renovations to the newly purchased home go for a FHA rehab loan as they get finance for their purchase along with subsequent repairs.

     
     

   • In simple terms, these loans comprise the total cost of home improvement in the mortgage.

     
     

   • Key features of home equity loan:

     
     

     • →   Government-backed loans.

       
       

     • →   Adjustable interest rate.

       
       

     • →   Allows financing for both purchase and renovation costs.

       
       

Checklist for smooth home improvement services

If you’re wondering what type of loans for home improvement to choose from, it is essential for you to check the eligibility terms and requirements for each loan type and take time to research all the available options.

Review your financial situation, and examine if you can really afford the loans for home improvement.

Here is the checklist we’ve made for you to ensure you have a seamless experience from planning to receiving the funds needed for home improvement services.

• ✅ Preliminary planning

  
  

  • Begin your assessment by outlining the specific areas of your home you want to improve.

    
    

  • Whether it's a kitchen remodel, bathroom upgrade, or an entire home makeover, clarity on the project's scope helps in setting realistic goals.

    
    

  • With the help of these goals, you can start budgeting your home improvement project. Once there is a budget set, you can start inquiring about home improvement services in your area.

    
    

  • Read reviews and request quotes from multiple home improvement service providers to have a list of choices.

    
    

• ✅ Financial preparation

  
  

  • Understand different loan options available such as personal loans, HELOCs, and cash-out refinance.

    
    

  • Each loan option has its own pros and cons and eligibility requirements, so choose one that aligns with your financial goals.

    
    

  • Get in touch with each lender personally, to understand the repayment terms and additional fees associated with the loan.

    
    

  • If you would like to check if you’re fit for all types of loans for home improvement, click here to fill out a quick quote and get complete assistance throughout the loan process.

    
    

  • It is important for borrowers to take enough time to comprehend interest rates and lenders' terms so that they can make informed decisions.

    
    

  • Calculating only the required borrowing amount avoids overborrowing or running short on funds midway through the project.

    
    

• ✅ Documentation and eligibility

  
  

  • You might require proof of documents such as pay stubs, credit history, and home improvement project estimates. Having these ready streamlines the application process.

    
    

  • Check with each lender for the eligibility requirements, as some lenders follow a strict screening process whereas others are quite lenient.

    
    

  • Maintain good credit terms so that you can secure favorable mortgage terms. If there are any implications on your credit score, you can adjust and take the steps to boost your score.

    
    

• ✅ Choose the right loan and apply

  
  

  • Once you have taken enough time to consider all the available loan options, make sure to go through the step-by-step process followed by every lender as the application process is different for every borrower.

    
    

  • Some borrowers will have to go through additional steps due to certain financial complications.

    
    

  • Know the approval time for the selected loan type as lenders will have varied processing times for each loan category, which directly impacts your project timeline.

    
    

How to select appropriate home improvement services

• Once you have researched a list of service providers, request detailed quotes from each one of them, ensuring they cover all aspects of the project, from materials to labor costs.

  
  

• Negotiate the home improvement services terms and pricing based on the collected quotes. Many service providers are open to negotiation, especially when presented with competitive offers.

  
  

• Go through online reviews and video testimonials for additional feedback. We don’t want you to waste the funds received from loans for home improvement. Be careful while choosing providers for your home improvement services.

  
  

• Work with service providers to establish a realistic project timeline. Factor in potential delays and communicate openly about expectations and deadlines.

  
  

• If challenges arise, address them promptly to find collaborative solutions that keep the home improvement project on track.

  
  

• Lastly, prioritize quality control, and ensure that the work meets your expectations and the agreed-upon standards outlined in the home improvement services project contract.

  
  

Key points to remember

Home improvement brings a sense of refreshment to your homes and it is important to choose the right loan and service provider for your home improvement projects so that you are satisfied with the end result.

Don't let the challenges of loans and home improvement services overwhelm you. With this checklist you will have a direction throughout the process, making your dream home improvement projects a reality.

So, before you pick up that paintbrush or start demolishing walls, tick off every item on this checklist for a smoother, and more successful home improvement journey.

Compare, choose, and apply✅