As the name suggests, home improvement loans exist to enable borrowers to make improvements to their properties, with the aim of increasing the value of that home. Such improvements can include adding an extra room, remodelling the kitchen or bathroom, replacing the roof, building a garage, installing a pool, or completely decorating and re-carpeting the whole house. To be eligible for a home improvement loan, the borrower must own their own home or be making regular mortgage payments on their property.
These are secured
loans, based on the current equity in the home.
Borrowers can potentially qualify for tax deductions on the home
improvements as long as the work is one their primary property and not a
vacation home or rental property. The
interest rates on these loans tend to be relatively low, when compared with
personal loans, as the lender is not taking much of a risk, and can assume that
the improvements will add value to the property.
There are two types
of loan available to borrowers; traditional home improvement loans and FHA
Title I home improvement loans. The traditional loan requires the borrower to
own at least twenty per cent equity in their property, preferably more. The collateral for the loan is the existing
equity in the house, along with the expected additional equity that will be
generated by the home improvements. The lender secures the loan by taking out a
first or second lien. The term for this
type of loan is usually ten years, although this can be extended to fifteen
depending on the amount borrowed. The interest paid on the loan is tax
deductible.
The second type of
loan, the FHA Title I loan, is part of a US Government sponsored program
intended to enable homeowners to improve their properties, even when they have
little or no equity in their homes.
These loans are available through approved lenders, usually banks and
the borrower does not need to have equity in their home to use as collateral.
Some home improvements
that are considered luxuries, such as installing a pool or barbeque pit, are
not allowed under the Title I program. The term of the loan can be up to twenty
years, and these loans are available to individuals with poor credit history,
so long as they can prove their recent financial affairs to be in order. Under
this program, if the loan request is less than seven and half thousand dollars,
the lender does not take a lien on the property. The requirements for Title I
loans are less stringent that traditional home improvement loans, making it
possible for almost all homeowners to take out such a loan.
If you are
considering buying your first home you should check to see if there are any
special programs available in your chosen community for first time buyers.
There are various things to look out for in a first-time buyer’s program which
include ensuring that the provider offering the program has been established in
your community for a reasonable length of time.
Some mortgage companies come and go, and supposed special offers may be
deceiving. You should also check the
requirements for the program. The best
programs will be aimed at helping low- or moderate-income families. They should offer low interest rates, reduced
deposits and low closing costs. Also
check if they offer education on home buying.
Whether you are
buying your first property, or considering taking out a home improvement loan
on your existing residence, always thoroughly consider your options, check what
programs are available to you, and if you are confused, get some good financial
advice from an impartial source. Choosing the right type of loan and a good
provider can save you a lot of money and hassle in the long run.
Disclaimer:
This article is presented solely as an example and is not meant to replace
qualified financial advice. If you or someone you know require up to date
financial or legal help, seek qualified assistance. No content on this site
should ever be used as a substitute for direct legal counsel from your lawyer
or a qualified attorney.
Comments