All about Home Improvement Loans

When Home Improvement Loans Might Become Necessary

home improvement loansYour home is your family’s headquarters. There, you do so many things. You are all eating, watching TV together, sleeping, playing, studying, reading… just about everything under the sun that does not, of course, disturb the neighbors.

However, as the years pass and everyone (including inanimate objects) ages, there is a necessity to improve this fortress of yours, as it is one of the most valuable assets your family can ever have. Or, if you’re financially smart, you can actually increase its market value if you plan to sell it several years later. Home improvement covers various areas like customizing the living room, adding another room for the next child, repairing and/or upgrading electrical and plumbing systems, overhauling the kitchen and/or bedroom, eliminating health and safety hazards, and enhancing accessibility for persons with disabilities. None of those rehabilitation types is cheap; because if they are, they are like adding a piece of useless chewed bubble gum to a shield. Many families have difficulty integrating home improvement into their monthly household budget, more so during times of recession, so where do they turn to?

This is where Home Improvement Loans come into the picture. Many financial institutions — whether they are from the government or from the private sector — offer these loans. Needless to say, much like most other industries, this market is extremely competitive and is craving for your attention since you do not have to wait for things to change. So which one suits you best?

Home Improvement Loans – Secured and Unsecured

Like a regular loan, Home Improvement Loans must be fully repaid in due time to the lender to avoid negative consequences. Based on this premise, there are two types of those loans: secured and unsecured. The major difference between the two is the collateral, or the borrower’s property that must be surrendered to the lender in exchange for the loan itself. If the borrower fails to repay the entire loan back in full, the lender can sell the collateral to complete the repayment. The borrower’s own home is usually assigned as the collateral, though cars and valuable documents can also be used. Secured loans have the collateral factored in, while unsecured loans do not. Secured loans have lower interest rates, but you can risk losing your home if they are not repaid. Unsecured loans have higher interest rates and additional repayment options, but the risks associated with the collateral won’t haunt you. If you want a cheat sheet on where you should use those two types, here is an idea. Go for a secured loan if you will make a large-scale renovation like adding a room or two — since your entire house is at stake (and its market value will increase). Settle for unsecured loans for small-scale renovations like replacing the circuit breaker or repainting the walls of your wife’s room.

Where You Can Look For Home Improvement Loans

As said before, you do not have to wait so long to get your loan. Many private financial institutions, especially big banks like Chase, have their own websites that let you apply for their Home Improvement Loans and give you the results after 90 seconds. They can even let you consolidate your current debts into your loan for more effective management, provided that you are resistant to the temptation of overspending. However, there is a catch associated with privately funded loans: they are permanently financed; that is, the lenders do not close them unless the condition and the value of the home are viable enough to make them secure for the eventual repayment. Plus, you would need separate loans to buy, renovate, and mortgage if you want to purchase a house in need of repair or modernization; and debt consolidation may actually complicate things more.

Home Improvement Loans and the Federal Housing Administration

This is where the government comes to the rescue. The Federal Housing Administration, which is under the Department of Housing and Urban Development (HUD), provides the power of three loans into a single loan. The loan is provided under the Section 203(k) program, which is named after the amended section of the National Housing Act that enables the HUD to encourage the restoration and preservation of existing houses in the United States. The HUD does not directly provide the loan; only FHA-approved lending institutions do.

The Section 203(k) loan is applicable to regular dwellings that house a maximum of four families and condominiums that have a maximum of four units per building. It also requires the renovated properties to be compliant to energy conservation standards and to have at least one approved smoke detector installed next to the sleeping area. For less extensive repairs and/or improvement, there is the Streamlined 203(k) Limited Repair Program. With this, you can borrow up to $35,000 for quick use, which will be added to your loan.

The FHA also provides standalone loans, which are called Title I loans. Like Section 203(k) loans, they are only provided by approved lending institutions. Their specifics are attractive to budget-conscious borrowers: the interest rate is negotiable; the loan security (collateral) is quite low ($7,500); and there is no prepayment penalty. Moreover, a Title I loan and a Section 203(k) can be combined.

For low- and moderate-income rural dwellers and American Indians, the FHA also provides specially formulated programs that suit their needs. For the latter, the Section 184 and Title VI programs are available.

There are so many options available for Home Improvement Loans, so try not to drown in them. Choose the one most suited for your needs, and be wary of deceptive home improvement contractors.

Home Improvement Loans