Are you sick of your house already? Maybe there are some parts that have fallen into disrepair, or you want to change your house’s look into a more modern one. If that’s the case, you need to invest some money into home improvement!
If you have money to spend to hire contractors, to purchase new floors, to get inspections, and do all the things required for home improvements, good for you! However, not all people have extra money lying around.
You might think that it is already the end of the line, but it isn’t. There are a number of home loan programs that you can avail to make those improvements. These programs have its pros and cons. To help you out, here are things to know about home loans.
Home Equity Loans
If you are getting a loan for home improvement, the most common loan to reach out for is Home Equity Loans or also known as second mortgages. This loan is very simple and has a number of attractive benefits.
The process is simple: You will go to a bank to get a loan and use your home as the collateral. Once the bank approves your home equity loan, you will receive a check with the loan’s full amount, and you can tell us the funds in any manner you want.
The value of the loan depends on two things: first, the bank will take into account the appraised value of your home; and second, they will consider how much you have paid off on your mortgage.
Home equity loans have a repayment term of 10 to 15 years. They also have low-interest rates.
Home Equity Lines of Credit (HELOCs)
A home equity line of credit, also known as HELOC, is similar to a home equity loan where your home is put up as a collateral. However, instead of receiving the full loan amount, you will receive a line of credit instead.
To determine the line of credit, the lender will consider the appraised value of the home and the amount of mortgage that has been paid off. The maximum amount for a HELOC is 85% of the mortgage value.
This line of credit is also issued in the form of a credit card, and you can use it as an as-needed basis for making minor improvements in your home.
What If You Have a Bad Credit?
To avail any of these home improvement loans, you need have a good credit. Unfortunately, the only way that lenders can judge your ability to pay for the loan is through your credit score. If you have a bad credit score, don’t worry, there are other options.
There is a B/C paper loan, which functions the same as a traditional loan. However, be warned. The interest rates for these loans are very high and have a higher monthly payment that can put your home at a risk of foreclosure.
When making a house loan, your ability to pay should be kept in mind. If you don’t think you can repay the loan on time, it would be better not to file for that loan. Instead, save up some money or get another part-time job to sustain the needs for a home improvement.