Advice on Home Improvement Loans
When you get a mortgage to buy a home, you're committing to paying off the loan for the next 20 to 30 years. But when you buy a home you also become responsible for its repair and maintenance. Every home needs work over time to retain its value and remain a safe place to live, while other forms of improvement can help you maintain and grow your investment.
Other People Are Reading
-
Types
-
You can choose from several types of home improvement loans, each with its own pros and cons. Second mortgages, which include home equity loans and home equity lines of credit, allow you to borrow against the portion of your home that you already own. Cash-out refinancing is similar but replaces your existing mortgage with a new one and also gives you a one-time payment up front, based on your home equity. Personal loans and credit cards can also be useful for funding home improvement projects.
Sources
-
Banks and mortgage lenders offer second mortgages with a interest rates that vary based on your credit rating and factors in the general economy. The U.S. Department of Housing and Urban Development also offers home improvement loans as part of a first mortgage for new home buyers who need money to improve their homes at the time of purchase. Commercial banks and credit card companies are also sources of loans you can use for home improvement.
-
Uses
-
Once you receive funds from a home improvement loan, you'll need to decide how to spend them. Repairing major problems and safety hazards should be a first priority, but once those are completed you should choose improvements that will make your home more comfortable to live in while also increasing it's value. According to the financial website Bankrate.com, improvements like upscale siding and a mid-range bathroom renovation on average can actually pay for themselves with the value they add to your home. Other projects such as adding an attic bedroom or remodeling the kitchen are also good investments that will effectively increase what your home is worth on the open market.
Time Frame
-
Your own plans for your home may influence how you use home improvement funds. For example, if you plan to sell the home in the near future, you'll be better served by taking care of the basics and performing improvements that add the most value, like new siding or kitchen and bath remodeling. However, if you plan to remain in the home for an extended period of time, you're in a better position to make improvements that serve you best. If adding a basement or attic bedroom means the house can accommodate your growing family and remove the need to look for a larger house, this might be the best improvement you can invest in.
Considerations
-
Any home improvement loan will cost you money in the form of interest. If you get a second mortgage, you'll have an additional monthly payment to make, or risk foreclosure. Credit cards often feature higher interest rates than mortgage loans. However, if you choose a card with a low or zero introductory rate and pay it off before the interest rate rises, you can finance your home improvements for less than a bank loan. Plan a payment schedule and decide how quickly you can pay off your home improvement loan before choosing which type of loan is best for you.
-
