Given the recent housing shortages and high home prices, it’s hard to blame homeowners for wanting to renovate instead of moving. Add in a global pandemic that’s kept many of us at home, and it should come as no surprise that over half of all homeowners are hoping to jump into a home improvement project this year!
Of course, even with the best personal financial management, it can be hard to find funding for the projects you love.
Fortunately, that’s where home renovation loans come in. No matter the home remodeling project you have in mind, these loans can help you get the cash you need fast. If you’re unfamiliar with this form of financial assistance, or if you’re having trouble deciding between multiple loan options, here’s what you should keep in mind.
What Is a Home Renovation Loan?
As the name suggests, a home improvement loan is a financial help option that allows property owners to pay for home maintenance and improvement projects.
However, it’s worth noting that these loans can come from a variety of sources. In fact, they can include simple personal loans for home repair or improvement, or they can include government-backed renovation loans.
How Do Renovation Loans Work?
In many cases, a home renovation loan works in much the same way as other types of loans.
Most major lenders will allow you to choose between two debt options for these types of loans.
Unsecured debt won’t require you to put down any collateral, though you’ll find yourself with higher APRs as a result. You’ll often need good credit and a solid financial safety net to qualify for this option.
Secured debts, on the other hand, will offer lower APRs. However, these APRs come with a downside: the lender will require you to put down collateral to reduce their risk. This collateral often comes in the form of your home itself, but you can also use other financial assets like your car, savings, or investments.
Regardless of the type of debt you opt for, you’ll get specific rates and terms based on both your credit history and personal preferences.
What Are Your Loan Options?
There are several ways to get a home renovation loan, depending on your credit and your financial assistance needs.
Borrowers with good credit and a steady income are most likely to qualify for a personal loan, which can help you avoid putting down collateral. This option can be the most straightforward, but it’s worth noting that late payments can hurt your credit score, so you’ll want to be sure you can commit to a steady repayment schedule.
Home Renovation Loans
Some online lenders offer renovation-specific loans, which can offer great variety in terms of rates, funding, and fees.
However, while it’s possible to find great options from select lenders, you’ll need to do your due diligence as you research. Smart borrowers will opt for funding from trusted sources such as the Plenti renovation loan, which offers flexible terms, affordable loan amounts, and unlimited early repayments.
Home Equity Loans for Renovation
These fixed-rate options allow you to get a quick lump sum by taking out a second mortgage on your home. Some homeowners may balk at the thought of this, but because home equity loans can help you lock yourself into a low rate, they can be a good option if you already know the total cost of your project.
Government Home Improvement Loans
The terms of government-issued loans will vary according to your state and city, but they often offer competitive terms.
However, you may find that these loans come with limitations worth keeping in mind. In many cases, government loans can only be used for your main property, and they can’t be used if you intend to sell your home within the next few years.
What Can You Use the Money For?
If you’re hoping to spend your funding on a huge spectrum of tools (like electrical tools that you can buy from a local electrical supply store) and projects, you might want to read the fine print.
Certain types of loans will restrict your ability to spend money on items that aren’t related to home upgrades. This is true of government loans, which often require you to use the funding only on home improvement work.
However, personal loans and most other types of home improvement loans will allow you to spend the money you receive as you see fit, without the need to show your lender proof of spending.
How Do You Choose a Home Renovation Loan?
If you’re weighing your options for a home renovation loan, you’ll need to consider your current financial situation and needs.
Certain loan types—such as personal loans—will require you to have a solid credit score and credit history. You’ll also need a steady income. Other loan types may require you to have mortgage equity.
In addition, your comfort level in terms of personal risk will matter as well. For example, are you willing to risk your home as collateral, or would you rather take time to improve your credit score for an unsecured loan? Alternatively, would you prefer putting down collateral to safeguard your credit score?
You’ll also need to do some research to decide whether or not you qualify for certain types of loans. The eligibility requirements for federal home improvement loans, for example, may vary depending on your income level, property type, and location.
Get Funding for Your Home Remodeling Project
If you’re eager to get started, don’t let a lack of funding stand in the way of your next home remodeling project. Depending on your needs and finances, you’ll be able to choose from several great options to get the cash you need for the home of your dreams. Do your due diligence to find the best offer and terms for your situation, and get started on your project today!
As you work to get closer to the property of your dreams, don’t forget to check out our other guides, which are packed with the real estate tips and tricks you need to know.