Renovating your home frequently is always a good idea for several reasons. You will improve the quality, add enjoyment to your home, and increase your home resale value or net worth.
Despite all the good things mentioned above, home renovation can be very pricey, very fast. For example, a minor kitchen remodeling can cost between $15000 to $35000, a simple vinyl window replacement costs $12000, and an additional master bedroom can cost up to a quarter-million-dollars here in the U.S.
And while most financial advisors recommend saving more money so that you can cover these expenses in cash. The reality that it is not always possible, especially during these challenging times.
But the good news is that there are many different plans for your home improvement loans that can help you with the cash you need. But there is a price you’ll have to pay. This guide article will discuss different home improvement loan plans and get the best solutions for you.
What is a home improvement loan?
There is no legal definition for a home improvement loan. However, it is described as a type of funding you take for home improvement projects.
In addition to this, you can choose to use different financing, like a home improvement loan, including home equity loans, HELOCs, and personal loans.
Types of home improvement loans
There are numerous types of home improvement loans, but the most common are:
1. Personal loan
Today, personal loans have become the most common type of home improvement loan. Personal loans have little to no limit, and you can pay for them just about anything, and debt consolidation and home improvement are some of the most common uses.
The good thing about them is that they are available on both traditional platforms and cash loans online. As a result, it is easy to check your eligibility status online and apply for the one with the most convincing terms.
Note that personal loans are unsecured debts; therefore, they are limited to any collateral. Therefore, if you fail to settle the loan, your lender can take your house, ruin your credit and find others to repay themselves.
2. Home equity loans
Home equity loans are simply fixed-rate personal loans, and your home is your security. When applying for these loans, you can borrow up to 80% of your current home market value minus the balance you owe the mortgage.
For example, if your house is worth $500000 and you have an outstanding mortgage balance of $300000, you can borrow up to $80000.
One of the advantages of applying for home equity loans is that they are approved faster than personal loans and have a lower closing cost. However, the negative side of using it is that you may pay higher interest for a smaller loan.
3. Home equity lines of credit (HELOCs)
HELOCs are considered a blend between home equity loans and credit cards since they work like them. However, as a borrower, you have a limited amount of cash on a needed basis, meaning payments may change as you continue borrowing.
At the same time, it means you are not paying for the amount you haven’t borrowed yet, although you have access to it. This is because HELOCs are secured by the borrower’s home, like affordable home insurance equity loans. Additionally, homeowners can only borrow up to 85% of their current home value.
Most HELOCs lenders prefer those with at least 20% equity in their home to be eligible for this type of financing. In addition to this, HELOCs have a lengthier underwriting process which is usually more expensive and time-consuming than personal loans.
Which improvement loans are suitable for me?
Here are some of the questions you need to ask yourself when deciding which type of Home Improvement Loans loan is right for you.
- Do I have enough equity for my home? If you don’t have one, you may not be eligible for a home equity loan or a HELOC.
- How good is my credit? It may be harder to get a personal loan if you have bad credit than to get a secure home equity loan or a HELOC.
- How do I want to save more money? HELOCs and home equity loans usually have lower interest rates than personal loans, but it is advisable to consider the closing cost.
- How fast do I need the cash? Personal loans often provide faster funding than home equity loans or HELOCs.
- Do I need a lump sum or overtime? A home equity loan is a better option if you are only paying for your home remodeling in segments. However, if you plan to do your project over a long time, a HELOC allows you to use credits as you need it.
Other optional for home improvement loans
Although personal loans, home equity loans, and HELOCs are some of the most common ways, people borrow money to upgrade their homes. However, they are not the only way you can source funds to fund your home improvement projects. Other ways include:
0% APR credit
Although adding your home improvement project on a credit card is a risky move, it could work when done using the right card. This method works if you use a credit card with a 0% APR introductory period that lasts 1 to 15 months.
Using a 0% APR credit card limits you from borrowing what you are comfortable paying off fully within the free interest period. Therefore, it would be best to use the strategy if you are planning to do small repairs and minor upgrades to your home.
Are you ready to get started with your home renovation project? If yes, checkout loan options using online tools at the comfort of your home and receive personalized rate quotes within minutes, and be on your way to remodeling your home.