Home Improvement Loan Information

A home improvement loan can provide you with the money you need to add on to your home, make repairs or upgrade your decor. Home improvement loans could come in the form of a home equity loan, a refinance or a personal loan. To qualify, you must show creditworthiness and offer sufficient collateral.

Function

• The purpose of this type of loan is to allow you to borrow money to upgrade your home. You can borrow money against the value of your house and then use that money to increase the value. You could use the money to upgrade the flooring, improve the kitchen, add on a room or update the entire home, for example. This can increase your enjoyment of the house, as well as make it more attractive if you are trying to sell it.

Types

• There are a few different types of home improvement loans. A home equity loan is a common type of loan that allows you to borrow against the equity in your house. With this type of loan, you keep your existing mortgage and simply take out another loan against the value of your house. You could also refinance your existing mortgage and take cash out in the process. A personal loan is also a consideration, but loans with no collateral can sometimes be hard to find.

Qualifications

• To be approved for a home improvement loan, you need to meet some basic qualifications. The lender looks at your credit history to determine if you're a good credit risk. The lender also requires that you have a certain amount of regular income to make payments on the loan. If you're getting a home equity loan or a refinance, you have to have enough equity in your home to justify the loan amount.

Warning

• When getting a home equity loan, it's important to review all the terms in the loan documents. Some lenders include terms in their loan that are less than favorable. For example, a lender might attach a large prepayment penalty to your loan, which would penalize you for trying to pay off your loan early. Closing costs are another area that should be monitored, as lenders often try to include unnecessary charges.

Considerations

• When using a home improvement loan, there are many ways in which you could spend the money. This type of loan can potentially help you increase the value of your home if you put the money into the right projects. There are certain things that you could invest in that won't provide you with a return on your investment. For example, buying new drapes and furniture won't add any value to the house, while upgrading the kitchen cabinets and flooring could.