Like everything around us, even our houses bear the onslaught of time on its structures, which is why people often ponder on the idea of renovating their homes after a few years. Renovation or repair work is usually undertaken after much deliberation, but there are instances when it becomes mandatory to undertake renovation if the house becomes uninhabitable owing to the weakening of the structure or due to some unavoidable repair work. Moreover, you need to take into account the factor that your home is an investment, and taking care of your investment is one of your major responsibilities.
Renovation and repair work can be a costly affair, but if you have saved enough money for the rainy day, then you can rest assured that all your money woes are taken care of. However, if the renovation is sudden and you don’t have enough money to undertake the emergency repairs, then the only saving grace in such circumstances is home improvement loans.
What are home improvement loans?
Home improvement loans are your regular personal loans that can be used for a home improvement project. These have a predetermined interest rate and has to be repaid over a set period of years, usually in three to five years. Home improvement loan providers offer both secured and unsecured home improvement loans, and depending on which you choose, you will have to pay the interest accordingly.
What are the different types of home improvement loans?
There are different types of home improvement loans you can opt for depending on the scale of your project; if it’s a minor renovation work, you can opt for short-term home improvement loans since you wouldn’t have to keep making monthly payments for a long time. However, if your requirements are more than just a simple repair work, there are other home improvement loan options you can choose from. The different types of home improvement loans are as follows:
- Traditional home improvement loans: Whether it is a kitchen or bathroom remodeling, adding a swimming pool in your backyard, or simply changing your HVAC system, the traditional home improvement loans are the perfect option for you. It allows you to borrow a lump sum amount that can be diverted towards paying for the necessary labor and other materials that are used in the renovation work. You can apply for this home improvement loan at any credit union, traditional banks, or an online lender. Since these are unsecured loans, you wouldn’t have to provide any collateral for the loan, but this means you will be charged a higher rate of interest.
- Personal loans and personal lines of credit: Personal loans are those unsecured loans that give the borrowers the freedom to use it for any purpose. Often people use personal loans to pay for vacations, consolidate debt, or to start their own business. You can even use it in the form of a home improvement loan, and like the traditional home improvement loan, you wouldn’t need a collateral for it. You can even opt for a personal line of credit that functions almost similar to the personal loan. However, instead of borrowing a total lump sum of money, you have to draw upon a line of credit which will be needed for a particular number of years. This ensures that homeowners do not end up borrowing more than they need.
- Home equity loans and home equity line of credit: Home equity loans and home equity line of credit (HELOCs) are another popular version of home improvement loans. Their long repayment periods are what makes them widely popular among homeowners since this implies lower monthly payments. Moreover, since these are secured loans, you wouldn’t be charged a higher rate of interest. However, in case of non-repayment of this loan, there are high chances that your house will be confiscated by the lender. So, ensuring that you make timely payments and pay off the loan as soon as possible is advised. The HELOC lets the borrower draw on a line of credit which is necessary for a particular period known as the draw period. During the draw period, the borrower has to repay only the interest on the loan, and this results in lower monthly installments.
- FHA Title I property improvement loans: This type of home improvement loan is meant for those people who wish to make essential changes to their houses to make it more inhabitable and useful. Even energy conservation improvements are invited. However, you cannot use this loan for luxury items such as outdoor fireplaces or swimming pools. Moreover, it is the lender who determines the interest rate, and it is imperative that you seek an FHA-approved Title I lender to secure this type of loan.
- Local government loans: Certain local governments offer home improvement loans to the low-income homeowners and to the elderly. For instance, in St. Paul, Minnesota, homeowners can get a loan from around $2,000 to $50,000 at 4% interest for building a new garage, adding a room, installing a new furnace or air-conditioner, roof replacement, and other important renovation work. However, such programs aren’t available everywhere. So, ensure that you check with the local government whether such loan programs exist in your area.