Ways to Finance Home Improvements

Your home may be the largest investment you will make.  Keeping your home not only looking its best but performing maintenance and replacing items that may need upgrades are all a part of homeownership.  If you do not have the necessary funds to maintain or make changes you might consider a home improvement loan.

If you’re in a position to save money to make home improvements, that is often the least expensive path, but you might not always be in that financial position.  Good thing there are financing options available.  You will need to research and talk to a loan officer to determine what type of loan is available for your particular needs.  Are you adding an addition to your home, replacing the roof or just replacing a few aged items.  For small projects, a short-term loan might be the best option, but for major projects, you could consider tapping into your home’s equity and apply for a home equity loan.

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Home Improvement Loans

These loans are financed by banks, credit unions, and a few online lenders.  With this type of loan, you’ll get a one lump sum to pay for any project you are working on.  These loans will cover all of the labor and materials for home improvements.

When applying for a home improvement loan take time to consider all of your needs.  Most home improvements, no matter how great of a budget you create tend to cost a little more than you anticipate, so be sure to leave room for error.

Other considerations are how long you want to pay for the improvement and what your total loan-to-value ratio is.   Keep in mind that since a home improvement loan is unsecured you can expect a higher rate than you would with a secured loan.

Personal Line of Credit or Personal Loan

This loan is also an unsecured loan and is collateral-free, however, you can use the lump sum for anything you want.  If you need a new car, are thinking of adding a pool, or just want to take a vacation, there are no stipulations.  This type of loan is not guaranteed by your home, therefore, the interest rate you get depends mostly on your credit score.

With personal loans, expect to pay back the loan within two to five years, which is shorter than a home equity loan, which can range from five to 30 years.   In addition, personal loans usually have a fixed interest rate so you know what your monthly payment will be.

Home Equity Loans

A home equity loan is a second mortgage for a fixed amount of money that is secured by your home.  Lenders usually limit total loans to 85 percent of the value of your home. This is the total loan-to-value ratio.

There are both advantages and disadvantages to taking out a home equity loan.  This type of loan typically has a lower interest rate and you can apply for larger loan amounts and qualify for certain tax deductions.  Some of the disadvantages are the risk of foreclosure, long-term payments and reduced equity in your home.


Cash-Out Refinance

A cash-out refinance is a good choice to get the cash you need.  This loan option requires approximately 20% equity in your home and you will have to once again meet all of the requirements of a home loan (good credit score and employment verification.)

What a cash-out refinance does is replace your current mortgage for more than you owe, but not that a cash-out refinance comes with closing costs comparable to your first mortgage.

FHA Title I Property Improvement Loans

FHA Title 1 loans are government-funded and have a fixed rate.  With this loan the U.S. Department of Housing and Urban Development (HUD) allows lenders to make home improvements.  The loan is issued through an FHA-approved lender.

These loans cannot be used for “luxury improvements,” but can be used to replace an air conditioning unit or other major home improvements that you don’t have funds on hand to fix.  The loans are usually unsecured and are under $7,500, however, larger loan amounts are available and will require using your home as collateral.  The loan caps at $25,000 with a 20-year repayment period.

Keep in mind these loans are not widely available, so you’ll want to contact us to see if you qualify.

The Certo Team
55 N. Arizona Place Suite #103
Chandler, AZ 85225

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