Houses need maintenance periodically. Sometimes, the repair work on your house is massive and you will need a substantial amount to improve your home. If you do not have enough savings for this purpose, you can take out a loan for your home improvement. There are lenders who have special packages for people who want to improve their home. We present all the necessary information you need to know about home improvement loans. Check them out.
Types of Home Improvement Loans
- Home Equity Loans
This loan is a fixed mortgage offered to people who want to buy their second homes. You will need to have a house to access this loan. This loan is granted based on the value of your previous home. Home equity loans are usually 85% to 100% of the value of your home. You will repay the loan for a fixed term. The lender will calculate the monthly repayments for you. However, monthly repayments are also fixed. Monthly payments are fixed because the interest rate is fixed. These loans are cheaper than personal loans, and they have longer repayment periods. Unfortunately, with home equity loans, you risk losing your home if you do not pay on time.This loan option attracts some fees including processing fees, late fees, and closing costs. The late fees are the penalties you will pay if you miss your monthly payments. Lenders do not take your home right away if you do not pay. They will penalize you by charging late fees. If you continue to miss payments, and there is no sign that you can repay the loan, the lender will take possession of your house. Another cost that is worth factoring into your plans is the appraisal fees. The lending company will need to appraise the house to know the worth of the house you are using as a guarantee for the loan. The appraisals are cheaper when the automated value model is used. Usually, such appraisals cost less than $150. However, if you home need significant repairs, a complex appraisal may be required. This type of appraisal can cost even $1000.The lending company will also need to confirm if the home you are using the secure the new loan is really yours. The company will conduct a title search. This search will also attract fees and you will be required to bear that cost. Some lenders also check your credit report and you will need to pay for the copy of the credit report. Other fees such as flood elevation fees and tax check may also be included.
Despite all these charges, home equity loans are still excellent loan options for people who need loans to purchase or renovate a new house. Home equity loans attract low interest rates and you can access a large amount of cash. They also have long repayment terms. This can be great if you intend on paying off your loan in smaller monthly payments. However, that will also mean you will stay in debt for a longer period. Another downside with this loan option is that it is difficult to qualify for this loan. If you do not have enough equity on your mortgage you will not be granted the loan.
- Personal Loans
You can also access a personal loan to improve your home. With personal loans, there is no need to secure the loan with your home. You will be granted a loan based on your credit score. The interest rate on the loan will be based on your credit score. If you have a good credit score, you can access a loan with a low interest rate. However, a bad credit score attracts high interest rates. You can obtain a loan amount between $1000 and $50,000. The repayment periods are shorter compared to home equity loans. This loan attracts application fees. Lenders charge you for the loan process. You will also pay late fees if you do not pay your loans on time. With personal loans, you do not need equity to qualify and you can also borrow small amounts. There is also no risk of losing your home. The downside of accessing this loan is that the interest rates are high since the loan is unsecured.
Best Home Equity Loan Options
CitiMortgage grants home equity loans to both customers and non-customers. However, their package is more beneficial if you are a customer. You will obtain the loan with a credit score of at least 680 if you are a customer and at least 700 if you do not have any relationship with CitiMortgage. They grant loans worth a minimum of $25,000 and a maximum of $300,000. You can access a loan that is 80% of the loan-to-value ratio of your home. The good thing is that you will not pay for closing costs.
- TD Bank
This bank is another bank that makes it easy for you to get a home equity loan. This bank, however, grants loans based on your debt-to-income ratio. If your debt-to-income ratio is above 49%, you may not qualify for a loan. This bank also checks your FICO credit score before granting you your loan. You should have a score of at least 680. Even though this bank charges closing fees, there is no limit to the amount you can obtain as a loan. However, the minimum amount you can obtain as a loan is $25,000.
- Flagstar Bank
The Flagstar Bank offers loans to people with FICO credit score not lower than 660. The loans they offer ranges between $10,000 and $1 million. You can also qualify for their home equity loan package if you have a debt to income ratio of 43% or less. With this loan, you will pay closing costs, appraisal fees and other fees which can amount to $750.
- Navy Federal Credit Union
If you are looking for a home equity loan option that can offer you 100% loan-to-value ratio, you can consider the Navy Federal Credit Union. This loan is easily accessible because there is no minimum credit score requirement and there is also no maximum debt-to-income ratio. You will also have access to flexible amounts since there are no restrictions on the loan amount.
The Best Personal Loans for Home Improvement
- Light Stream
Light Stream offers personal loans for home improvements. Repayment period ranges from 2 to 12 years. There is no origination fee or prepayment fee associated with this loan. The fact that there is no prepayment fee means that you can your loan earlier than you arranged with the lender. You will not pay extra fees even if you pay earlier. You need to have a FICO score of at least 660 to qualify. The minimum loan amount granted is $5000 and the maximum is $100,000.
Ernest also provides short term home improvement loans for people who need loans they can pay back in 2 to 3 years. It is required that you sign this loan with a co-signer. The required FICO score for accessing this loan is 660. You can obtain a loan between $2000 and $50,000 with this loan.
SoFi is another financial institution that grants loans to people who need funds to improve their homes. You will need a FICO score of at least 700 to access this loan. This means the SoFi loan is only available to people with good credit. This loan is a fixed rate loan. Hence, monthly repayments are fixed. The interest rate is also fixed. You can get a loan between $5000 and $100,000.
- Lending Club
Lending Club considers both credit score and debt-to-income ratio in granting loans to borrowers. You can be eligible for their home improvement loan package if you have a credit score of 600 or more. However, you will also need to have a debt-to-income ratio at most 40% to access the loan. They offer loans between $1000 and $40,000. You will be expected to pay an origination fee that is between 1% to 5% of the loan amount.
Alternatives to Home Equity and Personal Loans for Home Improvements
There are still other options if you think home equity loans or personal loans will not work for you. These options are also popular with people who need cash to refurbish their homes.
- Home Equity Line of Credit
The home equity line of credit allows you to use the equity in your home as collateral for a loan. This type of loan is revolving, unlike a home equity loan. You can borrow money and pay back a percentage of your home equity.
- Cash Out Refinancing
This loan type is similar to the equity home loan. In this case, you are allowed to take a refinanced home loan to replace the original mortgage. The new loan will attract a new interest rate, balance, and a new set of terms.
There are also government loan options that make funds available for people who seek funds to improve their homes. These programs include Title I and Energy Efficient Mortgages.
The Title I loans are available through the Department of Housing and Urban Development. This department authorizes lenders in each state to make home renovation loans available at market prices. You can visit the HUD website and check the options available for your state. HUD secures such loans in case you default. Loans are offered based on the family type. For instance, a single family can access $25,000 under this program for renovations.
Energy Efficient Mortgages are geared towards energy efficient renovations. When you apply for an Energy Efficient Mortgage, the lender will request for a home energy assessment of your home. This assessment will be conducted by a qualified home energy assessor. The assessment should indicate that the energy efficient improvements are cost effective.
Alternatives to Home Equity and Personal Loans for Home Improvements
Before you begin to apply for a home improvement loan, it is essential to plan. This will make it easier for you to get the loan. The first thing to consider is the amount you need. It is an excellent idea to make a rough estimate of the amount you need for the renovation. You should also consider the loan term after deciding the loan amount. The term will depend on the monthly payments you are willing to pay and the loan amount. If you do not want to debt for a long period, you should be ready to make huge monthly payments. Deciding on your preferred loan term also helps you to choose the banks to proceed with since some banks offer long term loans and others offer short term loans.
The next step is to get pre-qualified for a home improvement loan. When you get pre-qualified, you can know the interest rate at which lenders are willing to lend you the cash. You should confirm that the lenders are only performing a soft inquiry. Hard inquiries will affect your credit score and so you should insist on soft inquiry.
The next thing to do is to check your eligibility. You should check the credit score, loan-to-value ratio, and debt-to-income ratio. These are the major requirements lenders look at. The lenders have varying qualification requirements with regard to these things. Some require a higher credit score than others. Checking all these and knowing your status helps you to know the packages you qualify for. After checking all these, you can proceed to choose the financial institution whose requirements you qualify for. In most cases, you will qualify for a loan from multiple lenders. You can now factor in the interest rate, loan amount available, and loan terms to choose the best lender.