The Basics of Home Improvement Loans
Most people think about home improvement as all the little things you can fix or do around your house to make it more livable. But home improvement projects don’t have to be limited to small budgets or simply involve a few minutes of work on the weekend.
Today’s home improvements are becoming more expensive and many times home owner must take out a loan to cover the project or borrow money from some existing asset. Using borrowed money to upgrade a home is a much cheaper and easier option than buying a new home and moving for most people.
Larger home improvement projects that require financing could including adding an addition to your home, remodeling your home to add more space, upgrading the appointments in a kitchen or bathroom, installing a new furnace or cooling system, replacing a roof or installing siding or simply putting in a new swimming pool.
There are two general types of home improvement loans. There are unsecured home improvement loans and a secured home improvement loans. Within those two types there are many different loan vehicles and products which can give you extra money, though each has it’s own good points and potential drawbacks. The differences among the loan vehicles are many, but let’s focus on the two types of home improvement loans that are generally available:
Unsecured home improvement loan: An unsecured loan of any type involves you borrowing money without putting anything up for collateral. That means that if you can’t pay the loan then there is technically nothing the bank can immediately take away from you. Unsecured loans are granted based on many factors, but a steady income and good credit score definitely help. Home improvement credit cards are technically unsecured loans that are meant to be used for home improvement projects. Unsecured loans are meant to be paid back over a short period of time and will almost always have a higher interest rate.
Secured loan for home improvement: A secured loan is based on something of value, so it’s less risky to a bank. Often a secured home improvement loan is made using the equity, or extra value, your home may already hold. Secured loans are often larger loans that have lower interest rates. A home equity loan or home equity line of credit is essentially a secured loan that is often used for home improvements or remodeling projects.
Even if you have bad credit or very little equity in your home you can still sometimes take out a small home improvement loan without much trouble. Borrowing money to improve the home you own is often seen as a much safer option for many banks than borrowing money to purchase a new home entirely.
