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Home Improvement Loans
Loans used to
finance improvements on your house, or property, are
normally considered home improvement loans. Typically
the funds from the loan are used to maintain or increase
the value of the property. This may include doing
necessary repairs, renovating the kitchen, adding a new
bathroom, adding on or many other general property
improvements. Outdoor improvements can also be
considered home improvements in most cases. There are
several different improvement loans and financing types
available.
Types of home improvement loans
First mortgage loans – You may already have a first
mortgage from when you originally purchased your home.
Your current lender may also offer home improvement
loans as an additional loan or as an extension of the
existing mortgage. You will have to discuss the terms in
detail with your lender, but be sure and get other
quotes and make a detailed comparison of your available
options.
If you are just purchasing a property, that needs some
attention, you may also be able to include money to make
improvements with the purchase loan (such as an FHA 203k
Loan) Money for the improvements is usually paid out in
payments that are proportionate to the work that has
been completed and the contractor may be paid directly
by the lender. In other cases the borrower may receive
the money upon proving the payments to the contractor.
Second Mortgage Loans
You may have equity in your home that you can tap into,
but you should evaluate and compare your options in
detail. A second mortgage will usually have a higher
interest rate and often a shorter payoff period.
Mortgage Refinancing
By refinancing your first mortgage you may be able to
lower your payments, defer a payment or two or release
some cash for home improvements. In most cases you will
be starting the loan term all over again so make sure
you consider the total cost when comparing a new loan to
the existing one and when evaluating the total cost of
potential improvements.
Unsecured Loans
A personal loan does not require that you to have equity
in your home, nor does it require that you use the home
as security for the loan. It is a loan provided by
either a finance company or a bank. If you do default
however, and the lender secures a judgment against you,
they may be able to record the judgment as a lean
against your property.
Home Improvement Grants
There are many government grant programs available that
offer financial assistance to low income families to
repair their current homes. The Department of Housing
and Urban Development’s mission includes expanding home
ownership opportunities and fostering neighborhood
revitalization. They have established programs to
rehabilitate properties in partnership with state
housing agencies and non profit organizations. Check
with State and County agencies for more information.
Some government agencies also provide grants or tax
benefits for home improvements that save energy or make
homes more efficient. These are usually administered at
the State and County level. You can also learn more at
www.energystar.gov.
Some fundamental questions to answer while making your
evaluation of the different options include:
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 and total cost of the
loan be?
Are there any tax implications? (i.e. an increase in
property taxes.)
Are there possible tax deductions? (For energy efficient
fixtures, etc.)
And remember, before considering your various loan
options you should have a detailed plan of the
improvements you intend to carry out including the
estimated costs for the improvements. In many cases you
may be required to present this information to the
lender, therefore, you should also get estimates and
quotes from contractors.
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