Home improvement loans are designed to help a homeowner make improvements to their home. They are specifically given to be used for home improvements and may actually be easier than to obtain than other types of loans. This is because a home improvement loan helps to build equity in the home, so it is actually going to be making money. The current equity in the home is what is used to base the loan upon.
A home improvement loan is considered a low risk loan. It is secured with the home equity and is used to raise the equity in a home through improvements. It must be used to make home improvements. The main criteria for securing this type of loan is that the person owns the home and has some equity built up in the home.
The main uses for this type of loan are to make improvements or up dates to a home. Often they are used for major remodeling projects or major additions. There are two basic types of loans – the traditional home improvement loan and a FHA Title I home improvement loan.
Types of Loans
Traditional loans require about 20 percent or more equity built up in the home. The loan is taken through a lien on the home because it is basically an advance of the equity that is in the home. They are usually for a term of up to 15 years. The interest rates are usually much lower than other loans due to the low risk.
FHA Title I loans are made through the government. The type of improvements are restricted under this program, though. Some improvements such as swimming pools, are not allowed. The borrower does not need equity to secure this type of loan. This loan is good for people with credit problems and no equity. The term can be up to 20 years.
Any loan where the amount borrowed is under $ 7,500, a lien is not taking. The requirements for such a loan may also be less strict. They are also much easier to get and may offer much better terms and interest rates.
Making a Good Choice
Just as when shopping for that initial home loan, a home owner should shop around for an improvement loan. It is important to look for the best deal. Not all loans are the same and banks will differ in their terms. It is best to look at a few options and choose the one that will work best for your situation. Also, it is best to avoid borrowing too much, only borrow what you need. It helps to get some estimates on the work before ever looking for a loan.