Skip to main content
 
Guides

Should I Use an Installment Loan for House Improvements

By June 22, 2022June 24th, 2022No Comments
installment loan for house improvement

Everything You Should Know About Home Improvement Loans

For a variety of reasons, renovating your house is a good choice. You’ll be able to improve your personal quality of life, the market value of your property, and your net worth.

The main disadvantage is that house improvements may cost tens of thousands of dollars or more in certain circumstances. While it’s ideal to save up so that you can pay for things in cash, this isn’t always achievable.

The good news is that a variety of home renovation loans available may provide you with the funds you require—for a fee, of course. We’ll assist you in sorting through your choices and selecting the best alternative for you.

What Is a Home Improvement Loan and How Does It Work?

A home improvement loan does not have an established legal meaning. However, in general, it refers to any funding you get for home renovation tasks. In reality, you may utilize a home renovation loan from various sources, including personal loans, home equity loans, and home equity lines of credit (HELOCs).

Types of Home Improvement Loans

The following are the most popular forms of home renovation loans:

Unsecured personal loans: These give a large amount of money typically repaid in predetermined installments with no collateral.

Home equity loans are secured loans that enable you to borrow a lump amount from the equity you’ve built up in your home.

HELOCs (home equity lines of credit) are revolving credit lines with a maximum limit that enables you to borrow just what you need and pay it back later. They come in handy while working on current tasks.

Refinancing for cash: This entails replacing your existing mortgage with a bigger one and retaining the difference as cash.

FHA 204(k) loan: This government loan may be used to purchase and remodel a property.

Credit cards: Credit cards are payment cards that enable you to make purchases using a credit line.

Contractor funding is available via partner lenders for certain contractors. In most cases, the lender pays the contractor directly for the job.

What is the Best Home Improvement Loan for Me?

When selecting which home repair loan is best for you, examine the following questions. However, it’s always a good idea to see a financial counselor if you need assistance, particularly if you’re planning a large-scale project.

  • Do you own a property with equity? You won’t be allowed to utilize a home equity loan or a HELOC.
  • How vital is it to have access to cash quickly? HELOCs and home equity loans might take longer to fund than personal loans.
  • What is the state of your credit? If your credit isn’t perfect, an unsecured personal loan may be more challenging than a secured home equity loan or HELOC.
  • Is it so vital to saving money? Home equity loans and HELOCs have lower interest rates than personal loans, but closing fees must be included.
  • Do you need your funds in one single payment or over some time? Home equity or personal loan may be a better alternative if you’re paying for all your home upgrades at once. A HELOC permits you to access credit as you need it if you’re working on a project over time.

Uses and Costs of Common Home Improvement Loans

Home upgrades may be as little or as costly as you wish and can range from updating cabinet hardware to adding to your home. If you’re considering taking out a home renovation loan for a significant project, attempt to estimate the overall cost of the job before applying. This may be challenging, but if you have a budget, you’ll be less likely to run out of money during the project.

This is about how much individuals spend on popular home renovation projects, according to Remodeling Magazine’s 2020 Cost vs. Value Report:

  • $3,695 to replace a garage door
  • $23,452 for a simple kitchen makeover
  • $68,490 for a big kitchen makeover
  • The cost of adding a wooden deck is $14,360.
  • Vinyl siding replacement costs $14,359
  • $1,881 to replace an entrance door
  • A new asphalt shingle roof costs $24,700.
  • $135,547 for a further central suite expansion
  • Adding a synthetic stone veneer to the outside of the home—$9,357

Home Improvement Loan Alternatives

Personal loans, home equity loans, and home equity line of credit (HELOCs) are systematic methods for individuals to borrow money to improve their homes. However, these aren’t the only options for funding a home repair project. People also use the following two alternatives:

Credit Cards with 0% APR

Putting your home renovation project on a credit card is a hazardous option, but it may work if you’re cautious and choose the correct credit card. This method works best if you utilize a credit card with a 0% APR introductory term of at least a few months—typically between 12 and 21 months.

Limit your borrowing with a 0% APR card to what you can pay off entirely during the interest-free term. Because of this criterion, the technique best suits little tasks like minor house repairs and modifications. For example, putting your entire $135,000 master suite expansion on a credit card wouldn’t be a wise idea—assuming you could even qualify for a high credit limit.

Refinancing a Cash-Out Mortgage

Another option is to employ cash-out refinancing. You can tap into the equity in your house by refinancing for a more significant amount than you owe on your current mortgage. The rest is given to you in cash. If you owe $150,000 on your mortgage and refinanced it for $200,000, you’ll get $50,000 in cash for home upgrades.

However, refinancing is no easy feat. Other factors to consider include how much extra interest you’ll pay over time with the new loan and if you can afford the additional installments. However, for some individuals, it is a viable option for raising funds for house modifications.

What Are the Benefits and Drawbacks of a Home Improvement Loan?

Pros

  • You’ll get your money faster than you would with certain secured loans.
  • Repay in set monthly installments that are predictable.
  • No need to put up any collateral, like your house or car.

Cons

  • Rates on home renovation loans might be higher than those on secured loans.
  • If your financial status changes, you may be at risk of default.
  • a one-time payment (If you don’t know how much you’ll need, sketching from a line may be better)

Is it a good idea to use a personal loan for house improvements?

It depends on the circumstances. For minor or mid-sized tasks, such as new windows or a room makeover, a personal loan for home repair might be a terrific solution. Whether a personal loan is the best option for your next project comes down to weighing various financial benefits and drawbacks against your unique circumstances.

 

What is the best way to discover the lowest interest rates?

Comparatively speaking, not all lenders are made equal. Do your homework and compare lenders to get the best fit for your budget and credit.

  • Prequalify for a loan: Check with many lenders to see if you are prequalified for a loan. You may simply compare prices and terms this way.
  • Get a co-signer: If your credit isn’t great, a co-signer can be a good idea. They may assist you in obtaining a loan with a lower interest rate than you would be able to get on your own.
  • Improve your credit score: A better credit score means a reduced interest rate. If your credit score is poor, attempt to raise it before applying for a loan.

Choose a shorter loan duration: The shorter the loan term, the cheaper the interest rate you’ll pay. Make sure you can afford the monthly payments if you choose a shorter time.

What is the maximum amount you may borrow?

Because home renovations don’t utilize your property as collateral, the amount you may borrow is usually governed by the particular lender rather than the amount of equity you have in your home. Most lenders provide loans ranging from $1,000 to $50,000, with some allowing you to borrow considerably more.

Is it possible for me to take out a second mortgage to repair my home?

While you won’t be able to add on to your current mortgage, you may use cash-out refinancing to borrow money for home upgrades. With cash-out refinancing, you’ll take out a new mortgage for a higher amount than you presently owe. The difference will be paid in cash, which you may use for house renovations. Because you’ll be taking out a new mortgage with new conditions and an altogether new interest rate, cash-out refinancing is only a good idea if you can obtain a better rate than your current mortgage.

Luke Pitt