Keeping your home up to date is important when you plan to spend years there. There are different home improvements that you can do over the years, but planning them out and finding a way to afford them can be a challenge when you have to worry about the income involved. This causes many homeowners to pursue a home improvement loan.
Before you run out and get a new home improvement loan, there are a few things that you need to consider to make sure this is the right choice for you. Some of the things to consider about home improvement loans include:
Choosing the Right Type of Loan
There are many types of home improvement loans that you can go with when you want to make your home look amazing or do some updating. Some homeowners will choose a home equity loan and others will go with a personal home loan.
For a home equity loan, you will take a look at the equity in your home and then borrow against that amount. If the price of homes has risen quite a bit since you purchased the home or you have paid down a good amount of it since you moved in, this can make sense and helps you get a good rate on the loan you need.
Another option is a VA cash out refinance. This allows you to get a new loan on the home, without having to move out. You can take the loan out to the full value of the home and then keep the extra cash to do home improvements with. VA cash-out loans often have low interest, no down payment, and low closing costs so it can make sense if you qualify.
If you do not have a lot of equity in your home because you just moved in, then you may need to consider a personal home loan. This is offered by online enders, credit unions, and banks. Usually you need good credit and enough income to handle the extra payments, but these are often funded faster than the home equity or refinance loans.
Picking the Right Size Home Improvement Loan
Investing too much money in home improvement can be a bad idea. When you try to do this, it can cause you to borrow back more money than you are able to pay in a timely manner and you may over-invest in your home.
The first thing to consider is the equity in your home. If you have less money invested in your home than the amount that you owe, then there is a big risk that you will default on the renovation loan.
The next thing to do is to assess the value of the property and how much a renovation will help improve the value of the home. It is always best if you can borrow money to make improvements as long as they increase the value of the home or will help reduce the costs long-term.
Think About the Speed of the Loan
You need to think about how quickly you will need the loan. This will help determine which loan, either a home equity, cash-out refinance, or a personal loan is going to be the best for your home improvement needs.
If you have some time before the home improvements need to be done, then it is best to go with a home equity or a cash-out refinance loan. These will take longer to complete, but they often have better interest rates and better terms when it comes to how you can pay them back. Just be on the lookout for the closing costs and other lender fees.
However, it is possible that you will end up with an emergency that needs to be fixed right away. The home equity or the cash-out refinance will take too long to work on and you may need to get the personal loan instead.
A good personal loan is faster and you may get the money within a few days to help get the home improvement done. These will have higher interest rates, and some will have costs for the term of the loan, but they can be done fast, which will help you when you don’t have a lot of time to wait for the home improvement loan.
Consider Other Options
While a home equity loan or a personal loan are often the best options when it comes to a home improvement loan, you may find that you are not able to qualify for this kind of loan or you want to compare interest rates and see which one is right for you. There are several options you can choose to help get those home improvements done include:
- Equity line of credit: This option allows you to use the equity in your home, but more as a credit card, rather than as a new loan placed on the home. You will also be able to deduct the interest of this credit on your taxes, helping make it more affordable to fund the home improvements you need.
- Energy-efficient mortgage programs: With this FHA program, you will be able to finance some of the cost-effective energy-efficient improvements to help make your home better than before. You will need to talk to a lender to see what they can offer to you.
- Cash-out refinance: We talked about the VA cash-out refinance, but there are other options if you need a refinance that does not include the requirement to be a veteran. You can cash out the value of your home to make this work.
Choosing a Home Improvement Loan
There are times when you need to get home improvements done on your house before you can save up the money to do it. This is where a good home improvement loan can be useful for helping you protect your home and the people who live inside. Take a look at some of these important considerations to help you make a smart decision on a home improvement loan.