Perhaps you have owned your home for a few years, and though it has served you well over that time, you've decided that you would like to make a few repairs or other improvements. Rather than having to deplete your savings account, you could apply for a home improvement loan.
Home improvement loans are offered by lenders to provide financing for home improvements or repairs. Both secured and unsecured home improvement loans are available. Before you consider taking out a loan, you should take some time to structure a plan outlining your needs and the goals that you want to accomplish.
Prior to applying for the loan, shop around and get estimates from at least two contractors. By doing this, you will be certain that you are not overpaying for the improvement, and the lender may request the written estimate or actual costs expected during the loan approval process. Keep in mind that you want the home improvement to increase the value of your home in excess of the loan you obtain. For example, if the cost of the improvement is $20,000, you want to make sure that your home value will increase more than $20,000.
There are two different home equity loans available. A home equity loan is a fixed-rate loan that is given in a lump sum, and it offers a fixed interest rate. This ensures that your payments are the same each month and are spread out over a period of time - usually 15 to 20 years but, depending on your lender, perhaps as long as 30 years.
A home equity line of credit is a variable-rate loan that is very much like a credit card, as it offers a revolving line of credit. It offers a "draw period," which allows the homeowner to borrow money against a limit determined by the lender for anywhere from 6 months to 10 years. During the "draw period," the homeowner can borrow money as needed, and as they pay it down or pay it off, they can "reuse" the credit. During the "repayment period ," the homeowner cannot borrow any money even though they may not have reached the preset limit. The repayment may last anywhere from 10 to 20 years, as determined by the lender.
Some homeowners prefer having the home equity line of credit option, as they feel they are in control of how much money they actually borrow.
Before you apply for any type of home improvement loan, speak with a mortgage professional who will be able to explain all of the options available to you and answer all of your questions.
By Mortgage Expert