Whether you’re looking to buy, sell, or stay in your home, you may be considering a home improvement project. And while renovations can help increase the equity of your home, and add a personal touch, they can be costly.
Personal loans offer a possible alternative to home equity financing. Home improvement loans can make it easy to increase your home’s value without tapping into equity.
Home improvement loans are useful for financing:
It doesn’t matter if you’re looking to remodel your kitchen or re-insulate your attic. You want to be sure you’re getting the most value out of your project and your loan.
What is a home improvement loan?
Home improvement loans are personal loans used to fund home renovations and repairs. Like personal loans in general, most home improvement loans are unsecured. With an unsecured loan, you won’t have to tap into your home’s existing equity or use your property as collateral.
Because they don’t rely on available equity, home improvement loans can be an appealing choice for:
Home improvement loans offer relatively quick approval and lump-sum payments. Often, borrowers will receive their entire loan within a week. Once you’ve received your loan, you can get started on your project quickly.
How to use a home improvement loan to increase value
Not all home improvement projects are created equal. Some cost more while adding little to your property’s value. Comparing a project’s cost vs. its value can help determine the return you’ll get when it comes time to sell.
According to the Remodeling 2018 Cost vs. Value Report (www.costvsvalue.com), the projects with the most recouped costs include:
1. Consider your plans for the future
Do you intend to continue living in your home for years to come? Or are you planning to sell within 5 years?
2. Consider the type of project you’re looking to begin
There are three different types of home improvement projects:
Repairs are renovations necessary to the sale of your home. Repairs can include projects such as new insulation, a new roof, heating/air conditioning upgrades, etc.
3. Call local contractors to get an estimate of your project’s cost
As with loans, be sure to shop around and find the most competitive rate possible. Once you have your timeline, type of project, and cost, it’s time to take out a loan.
Here’s what you’ll need ready before applying for a home improvement loan:
Your credit score: The most favorable rates often go to borrowers with the highest credit score. Every lender you apply to is going to want to know your credit score and credit history.
The cost of your project: Home improvement projects can vary widely in cost. Remodeling your bathroom won’t cost the same as replacing your windows. Before applying, know the cost of your materials and length of your project. Don’t borrow more money than you need.
Your debt-to-income ratio: You can find your debt-to-income ratio by dividing all of your monthly debt payments by your monthly income. On average, home improvement lenders consider a 20% debt-to-income ratio low. Many lenders will consider borrowers with higher ratios, but the cutoff is around 50%