Home improvement loans are offered to qualified homeowners for use in making improvements on their homes. Repairs, remodeling, landscaping, extensions and anything that may increase the property value are considered home improvements and may qualify for a home improvement loan, which may be tax deductible.
Home improvement loan rates are determined using your credit history, repayment history, length of the loan, employment and credit status.
If you have equity in your home, you may qualify for a home equity loan or a home equity line of credit. Typically, a lender will calculate these figures using a percentage of the home appraisal (typically 80 to 125 percent) subtracted by the balance owed. The APR can range from 3 to 10 percent, depending on credit history.
Refinancing your home is a good way to secure extra cash for any home repairs if your current interest rate is 2 points higher than the market and you intend to live in your house for more than 3 years.
Long-term vs. Short-term
For small loans or short-term loans, a home equity loan may be a better option, since refinancing serves to lower payments over the length of the loan.
Unsecured vs. Secured
Because secured loans use your home as collateral, the rates are typically lower than unsecured loans, by as much as 6%. Keep in mind that if you default on a secured loan, you can lose your home.
Certain homeowners can qualify for an FHA (Federal Housing Administration) loan. The FHA insures loans up to $25,000 for a single-family home. FHA loans are viable options for those with no equity, though interest rates may be higher.
Before securing a home improvement loan, check with a financial planner or tax consultant.
Shanika Chapman has been writing business-related articles since 2009. She holds a Bachelor of Science in social science from the University of Maryland University College. Chapman also served for four years in the Air Force and has run a successful business since 2008.