A home renovation loan can assist in paying for the repair, moderation or general improvement of a home.
The cost of home improvements and repairs can quickly add up, potentially limiting the amount of work that you can complete on your home without financial assistance.
Once you are ready to apply for a renovation loan, you will need to determine the amount that you wish to apply for. This can be done by obtaining estimates from the contractors or businesses that you intend to work with for your home’s renovations. However, it is important to keep in mind that unexpected issues or repairs can drive home improvement costs a little higher. You can be better prepared for the unexpected by applying for a loan that is a little bit higher than that of your estimates.
Learn About Renovation Loan Requirements
Most home improvement loans will require you to meet minimum credit score, income and debt-to-income ratio as well as down payment requirements in order to be approved for a loan. Minimum eligibility requirements will vary by the type of loan that you apply for. Additionally, the interest rate that you can expect when repaying your loan will not only vary between the various types of loans available to you but also based upon your credit score and credit history.
Learn About the Types of Renovation Loans
In order to determine the home improvement loan rates that may be available to you, it is important to take the time to review the different types of loans that you can apply for, as some loan types will have a higher interest rate than others. As stated previously, eligibility requirements will also vary by the type of loan that you apply for. Therefore, it is important to examine all of your options, including what you may qualify for and the types of loans that would provide the most benefit.
About Fannie Mae’s HomeStyle Renovation Loan
One of the most well-known home renovation loan options is the Fannie Mae’s HomeStyle Renovation loan. This government-backed loan can be acquired when purchasing a home that needs repairs or when refinancing an existing mortgage and taking out an additional loan that will be put towards home improvements and repairs. To qualify for this type renovation loan, you must meet certain eligibility requirement, including:
- Credit score minimum requirements, which are based upon whether or not the home is or will be your primary residence.
- The capability of making a down payment of at least five percent.
- You must submit a cost estimate and details of the work that is to be done on your home that was prepared by a certified contractor.
As far as home improvement and home repair loans go, a HomeStyle loan is simple, as it only includes one loan, rather than one loan for the mortgage and a second for repair or improvement costs. This reduces both paperwork and closing fees. However, one potential disadvantage of the HomeStyle loan is that you will not have access to the funds for the repairs on your home. Instead, a separate escrow account will be created, which can be used to pay approved contractors directly.
About FHA 203(k) Loans
If you are looking for home repair loans, then you may want to consider applying for an FHA 203 (k) loan. Offered by the Federal Housing Administration, this type of loan can primarily be used towards the cost of authorized repairs on the home. While the loan can be used for cosmetic upgrades and other home improvements, some loans will have a limited amount of funds that can be used towards upgrades and will require a qualified 203 (k) consultant to oversee every step of the work that is to be performed on the home.
An FHA 203 (k) renovation loan offers several advantages in comparison to other similar types of loans. For starters, the minimum credit score requirements are often are lower for 203(k) loans and this type of loan features a reduced down payment requirement of 3.5 percent.
About Home Equity and Home Equity Line of Credit (HELOC) Loans
You can obtain a home renovation loan by taking out a home equity loan, more commonly referred to as a second mortgage. This type of loan features a stable interest rate and monthly payments that remain the same throughout the life of the loan.
An additional and similar option is taking out a home equity line of credit (HELOC). While similar, a HELOC offers a revolving balance. You can access funds as needed in several large payments over time, making HELOC beneficial or big home improvement projects.
However, both of these types of home improvement loans will require you to pledge your home as collateral. This is important to note as if you do not make your payments, then the lender will have the legal right to seize your home.
About Personal Loans
While not strictly a home renovation loan, you may also have an option of taking out a personal loan to cover the costs of home improvements, modernizations and repairs. Personal loans have the benefit of being unsecured, which means you will not need to put your home up as collateral that could then be seized in the event of a nonpayment.
Generally, funds become available relatively quickly once approved for the loan and meeting eligibility requirements are strictly credit score, income and financial history based. A personal loan may only be the best option if you have an excellent credit score or if you do not need to borrow a large sum for the improvements or repairs on your home.
Your home improvement loan interest rate would be determined by the lender that you apply for a personal loan with. Lower interest rates are granted to when you have a higher credit score. For instance, if you have a credit score of 720 or higher, then you will likely qualify for an interest rate less than 10 percent. However, if you do not have a great credit score, then you could pay as much as 24 percent interest.
Learn About the Best Home Improvement Loans for You
The best home improvement loans will come down to the type of loans that you may qualify, the amount of money you need for your home improvement or repair project and your own personal preferences. However, by learning more about each of the options that may be available to you, you will be able to make an informed decision as to which type of loan you should apply for.
Once ready to apply for a renovation loan, you will need to contact a lender that is approved to provide the type of loan that you are seeking. For a personal loan, you do not need to go through a mortgage lender.