Undertaking a home improvement project can be really expensive and thus, financing is essential. There are many financial products that can help you finance home improvements. Some are more suitable for the task than others but all of them have advantages and disadvantages.
When home improvements are necessary, the following financial solutions can provide you with the needed funds for the project depending on the amount you want: Credit cards, unsecured personal loans, mortgage loans and home equity loans. All of them (except for the credit cards) can be called home improvement loans because what defines a home improvement loan is the use that you give to the money. However, home improvement loans are usually either mortgage loans or home equity loans.
Credit Cards For Financing Home Improvements
Credit cards are undoubtedly great financial tools due to their flexibility. However, they are not particularly useful in terms of scrimping and saving. The interest rates charged by credit card issuers are significantly higher than the rates charged by lenders and thus, a $3000 home improvement project can end up costing $600 more per year. However, used in combination with other financial products like home equity loans, credit cards can provide the funds necessary for covering unexpected expenses in the project or additional improvements that may rise while the original project is on course.
Unsecured Personal Loans For Home Improvements
Unsecured personal loans are perfect for home improvements but can provide the funds for small projects only. If your home improvement plans will not be that costly, then an unsecured personal loan for home improvements may be the solution. Besides, personal loans have an advantage over secured loans: there is little to no paperwork and they are processed considerably faster due to the lack of collateral.
Mortgage Loans For Home Improvements
If your property is not securing any debt, then, you can request a home improvement mortgage loan. These loans come with the lowest rates on the market. Since you already own the property, however, the interest rate will not be as low as home loans for first time home buyers which feature subsidized rates. But the interest rate will still be significantly lower than that of any other financial product.
Home Improvement Loans Based On Equity
Last, but not means least, home equity loans are the most common form of home improvement loans. These loans are based on the equity left on your property. Thus, it does not matter if you have a mortgage balance on your property, you can still get finance for your home improvements as long as the value of the property is higher than the amount of money you owe that is secured by it.
The amount of money you can obtain will depend on your available equity. However, for home improvements, there are loan options offering up to 125% financing if you have a good credit score and history. Thus, even if you have only $10,000 left on a $100,000 property, you will be able to obtain up to $35,000 on a home improvement loan based on equity.
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Jessica Peterson writes
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