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Home Improvement Loans are home loans used to finance improvements on your house or property. These loans are used to maintain or increase the value of your home. This can include repairs, a new kitchen, a new bathroom, an extension or general property improvements. Landscape improvements and swimming pools can also in many cases be considered home improvement. Generally, all actions that can be considered to increase the value of the property in such a way that it increases the expected sales value of the home or the property are to be considered home improvements.
There are several different loan and financing types available
- First mortgage
- Second mortgage loans (Home equity loans, Home equity line of credit)
- Refinancing solutions
- Unsecured loans (Personal loans)
Before considering the loan options you should have a detailed plan for the home improvement you intend to carry out. In this plan you should include both the calculated and estimated costs for the improvements, but also the value improvements you are expecting. In a later stage you will in many cases be required to present this information to the lender, therefore you should also get estimates and quotes from contractors.
Questions to ask yourself
- Are the improvements you plan to undertake increasing the value of your home more than the loan you apply for?
- What will the monthly payments be?
- What are the tax implications? Possible tax deductions?
First mortgage loans
Typically home improvement loans are given against your first mortgage by your current lender. Discuss the terms and conditions with the lender you already have, but be sure to get other quotes and to make a detailed comparison of your different options. Most commonly the loan is extended for the remaining period of the original mortgage, but you will have to discuss the terms in detail with your mortgage lender. Home improvement loans are usually paid out in payments in proportion to the work that is being carried out and the contractor may be paid directly from the lender. In other cases the borrower may receive the money or the loan only upon proving the payments to the contractor.
You may have substantial equity in your home that you can tap, but you should evaluate and compare the different alternatives in detail.
Home mortgage refinancing
By refinancing your mortgage you may be able to lower your payments, defer payments or release some cash for home improvements.
A personal loan for home improvement doesn't require you to have equity in your home or borrow against the value of your home. It is a loan disbursed by either a finance company or bank to finance your home improvement project.
Home Improvement Grants
There are Government grants programs available offering financial help to low income families to repair current homes. HUD aims at expanding home ownership opportunities and neighborhood revitalization and have programs to rehabilitate properties in partnership with state housing agencies and non profit organizations (see below).