Whether you’re looking to renovate that fixer upper or it’s time to invest in some much needed repairs, you’re probably seeing the bills add up mighty fast.
The best way to pay for anything is with cash, and taking on a loan to fund those projects might be intimidating. The good news, though, is that a home improvement loan can be a great investment, for both your home and your financial future.
What Does Your Credit Look Like?
Before you inquire into any loans, you need to check your credit scores to ensure that you will be getting the best deal available. Don’t be blindsided by forgotten bills that might be dragging down your credit.
The higher your credit score, the easier it will be for you to be approved for a loan and the lower your interest rate will be. Things like missed or late mortgage payments can severely affect a home buyer, so make sure to check your credit scores and to clean up any loose ends you might find first.
A Home Equity Loan Versus A Home Equity Line Of Credit
Most home improvement loans are based on the amount of equity you have in your home. If you put a down payment on your home, that will count towards your equity, as will any amount that you have paid on your principal.
There are two types of equity loans to look into. The first is a home equity loan. Home equity loans are a very reliable way to finance your big ticket projects and in many cases can even be tax deductible. The loan is taken out using your house as collateral to ensure payment. You receive a fixed amount of money at a fixed interest rate determined by your lender based on the equity you have in your home.
The second type of loan is a home equity line of credit. This is similar to a home equity loan in that it uses your home as collateral to guarantee that the lender will receive all payments. However, it’s different from a home equity loan because it’s not a fixed amount of money given at one time.
You can withdraw the cash when you need it up to a certain limit, which is determined based on the amount of equity you have in your home. A home equity line of credit is a good choice if you have a long-term project or you’re taking on one project now and know that you will need money for a project in the foreseeable future. The interest on a home equity line of credit is tax deductible. However, the interest rate for these lines of credit are very often variable and can change overnight.
With the housing market the way that it’s been for the past few years, home equity loans aren’t as easy to come by as they once were. That is mainly because many people don’t have the equity in their homes needed in order to approve the loan.
Taking Out A Title One Loan
If you don’t have any equity in your home, you still have some options. You can tap into your savings if you have enough, you could borrow from your 401(k) if available, or you could apply for a Title 1 loan.
The great part of a Title 1 loan is that it doesn’t require the borrower to have any equity in their home to to be eligible. But there are some more stipulations than you would find with the home equity loan. The maximum amount you can borrow with a Title 1 loan for a single family home is $25,000, and you can’t spend it on nonessential or luxury items like an inground pool.
However, if you don’t have much equity in your home and are in need of a new roof and siding, then the Title 1 loan might be exactly what you’re looking for.
Avoid Financing Through The Contractor
Some contractors offer their own line of credit if you finance through their company. Some people are drawn to this option when they’re having trouble getting any other type of loan.
However, many experts agree that financing through a contractor rather than a lender is not a good idea. Not only do you have to worry about the risk of getting involved with someone who is too close to the job, these loans are often given at well above the going interest rate.
Seek an alternate loan, look into refinancing your house, or borrow from family if it’s necessary. But avoid contractor loans if and whenever possible.
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