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Home Improvement Loans — Financing Your Fixer-Upper

Home Improvement & Renovation Loans

With the our housing stock aging, new construction inventories dwindling and the suburban flight back to urban America the need for renovation and home improvement loans has increased dramatically in recent years.

When most think of home improvement financing the first thought that pops up is your good old Home Equity Line of Credit (HELOC). In the past that may have been the best direction to go and for a very select few it is still the best way to go. However, this mortgage market is different than the past.

With home values plummeting, equity disappearing and guidelines ever in flux new home improvement financing options have taken center stage.

Whether it be purchase and renovate or refinance and renovate this new crop of home improvement loan players have shown they are better suited and more flexible then your traditional 2nd loan and HELOC financing options. SO, who are the new players and how do they work?

FHA 203K Loans

While 203K financing has been around for years, the loan was hardly ever utilized until put back into play by declining values, beat up foreclosure stock and tightening credit guidelines.

The 203K Loan offers flexible credit qualification, low down payments on purchases, minimal equity needed on refinances and an appraisal bsed on after-repair value. 

Home Equity Loans

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Passable, serviceable veterans of the home improvement loan industry, HomeEquity loans suitable for certain situations. If you have significant equity then a HELOC is usually the cheapest way to tap into it for renovations.

However, unlike 203K & Homestyle renovation products, Home Equity Loans use the current value of your property without consideration how much value your home improvements will add.

This, along with lower allowable loan to values, typically means fewer dollars to tap into for your renovation. Finally, the credit qualification guidelines for HELOC’s are much stricter than that of FHA.

When you combine as-is valuation and tough credit qualification you get fewer qualified customers and a loan product that isn’t always suited for this mortgage market

Fannie Mae Homestyle Loans

A relative newcomer to the home improvement scene, the Homestyle is the conventional sister to the 203K.

More flexible when it comes to repair, but harder to get approved. This loan fills some large gaps left by FHA renovation financing though.

Unlike FHA loans, the Homestyle works for 2nd homes and investment properties. It also works for unfinished builder foreclosures which is huge if you’d like to get a great deal on a new construction home.

An added bonus is that you can have more than one Homestyle loan, FHA typically only allows you to have one loan at any given time.

Cash-out Refinance Loans

For years cash-out refinances were THE way to tap into your homes equity for improvements.

However, much like  HELOC’s they are based on the current value of your house and not the after repair value like 203K & Homestyle renovation loans. This means less room to renovate and with declining home values, fewer qualified customers.

In closing, for you lucky folks that still have significant equity in your home you may be able to complete you home improvements by tapping into your equity via a Home Equity Line of Credit or a cash-out refinance.

For the vast majority of folks across this great land who simply don’t have enough equity you’ll need to explore renovation products like the FHA 203K and Fannie Mae Homestyle renovation loans that are based on after repair value.

For those of you that are looking to purchase a fixer upper those two renovation products are likely your ONLY option to find home improvement loan financing

Everyone wants a beautiful house but at the same time most people have financial constraints. When you have major home repairs or remodeling plans you’ll quickly realize that the budget that is needed is probably more than you have in your savings account, or just not an amount of money that you want to take out of savings. Loans are one good option whereby you can fund your home improvements. There are a couple different types of loans that will give you the funds that you need.

Home Improvement Funding Made Simple

A loan is that trustworthy source of fund which one seeks while repairing or making changes to his home. There are a couple different types of loans that you can look into that will likely be able to provide you with just the funding that you need. The home equity loan is one of them. With this type of loan you are actually borrowing against the value of the home.

Depending on the type of home equity loan you are able to secure, you could borrow up to 100% of the value of the home, less any liens of course. This borrowed money usually provides the amount that you could need. When you go this route you just have to be sure that you can repay the loan, as you are securing it with your home, making it a second mortgage.

Another option is to take out a personal loan, which most banks offer. Banks are generally not concerned with how the clients use their personal loans. Hence you can use it as per your needs. With this type of loan you will simply go through the loan application process, indicate how much money you need, and then you will receive a response as to how much you are able to borrow from the lender and what your interest rate will be.

Although this seems similar to the home equity loan, you are not mortgaging your home against the money you borrow. How much you can borrow through a personal loan will vary depending on your credit history and your income to debt ratio.

Another type of loan offered by many banks and lenders is the home improvement loan. Generally this is a term used to refer to the home equity loan. You can look into the offerings out there for home improvement loans, but just be aware that many of them require a home as collateral and that is basically the same thing as a home equity loan. Generally the interest rate of a standard home equity loan is not the same as that of a home improvement loan.

There is a list of such funding options available. All you need to do is go through them and choose one. While home improvement is important, all of the changes and updates won’t be important anymore if you cannot afford to pay on the loan! Make sure that the loan terms are reasonable and that it is something that you can afford to pay back, and then go for it! The right source of funds make home improvement much easier than one can ever imagine.

Homes need updating. Aside from the cosmetics of tiles and paint colors, there are the basic, but necessary renovations that need to be taken care of as well.

Young home buyers frequently enter into a mortgage commitment scraping together all they have to offer a decent down payment and having calculated what they need to be able to afford the monthly payments. What they may not take into as serious account are the monthly utility bills and the eventual (inevitable) costs of house and property upkeep.

Those requirements may be acknowledged as necessary somewhere down the road, but since they are not immanent, the couple may simply assume they will come up with the money from somewhere when the needs are more pressing.

However, from re-shingling a roof to weather-proofing your windows, major home improvement projects are a part of home ownership. Unfortunately, they’re also costly and there isn’t always room in the family budget for a full overhaul of the heating and ventilation system. That’s where home improvement financing comes in.

For those who don’t have much extra money saved, home improvement financing allows homeowners to borrow what they need for renovations. Sometimes the house itself is used as equity and in other situations, little to no equity is required. Keep reading to learn about the different types of home improvement project financing.

Home Equity Loan

The terms for any loan, including a home improvement or renovation financing loan, will vary depending on the borrower. If you have good credit, your mortgage is paid off and you’re willing to put your house forward as equity, then you can expect to get great rates payable over a period of months or years.

You could even opt for a second mortgage, which will get you rates close to prime. However, while a home equity loan obtains for you a lump sum up front, remember that you’ll start paying interest on that entire sum right away.

Line of Credit

One of the easiest ways to borrow money is through a home equity line of credit. A line of credit allows you to only borrow as you need, therefore only paying interest on what you use. The rates, if your credit is good, are great and they’re often approved fairly quickly and painlessly.

Remodeling or Home Improvement Loan

Many banks offer remodeling or renovation-specific loan programs. These work by combining a construction loan with a mortgage and are based on the projected value of the home after you complete your project.

You will most likely have to submit a building plan as well as a breakdown of all your project expenses. The bank then usually releases the money in increments, as the project progresses.

Credit Cards

If your credit isn’t as good or you’re still building it, you may opt for a small amount of financing that will let you complete the project without being overwhelmed by debt. An example of this might even be store credit from a local store – just enough to purchase a new furnace or the materials you need to retile your floors.