Home renovations can be an excellent investment as they can help improve your quality of life. It also increases your home’s resale value and net worth in the long run. However, home renovations can get expensive, where the price can reach up to tens of thousands of dollars or more.
The home renovations budget needs to be considered, and there are times that the expenses for home renovation and improvement do not fit the budget. Home renovation loans can help you borrow the cash you need for a price, while you can also determine how much is the home renovations tax credit is available.
There are types of home improvement loans, as borrowing money or getting government grants for home renovations can have several financing methods that you can take out as a loan.
- Personal Loan
Personal loans can be considered the most common type of home improvement loans that can be used to pay for many things. They range from traditional and online lenders, so it’s easy to check if the terms are favourable to you. A personal loan is one type of unsecured debt wherein it is not tied to any collateral.
- Home Equity Loan
A home equity loan is a type of secured loan wherein you have your house as collateral for the loan. It means that a lender can legally take your home away from you if you default on your loan. A Home Equity Loan can give you money all at once for a fixed interest rate loan.
- Home Equity Line of Credit (HELOC)
Home Equity Line of Credit (HELOC) is a mix of a Home Equity Loan, and a credit line wherein borrowers have access to a limited amount of funds on an as-needed basis. It means that you are not paying to borrow money that is not yet needed, which is suitable for a long-term home improvement project.
Besides the types of home renovation loans, there is also a list of things you must know about applying for a home renovation loan:
- Deciding the loan amount
A homeowner needs to calculate the loan amount they need for their home improvement project. It is also essential to make a list of the things required for home renovations to determine the total budget. After this, the next step is determining how much of your savings can fund the renovation. It is also needed to determine how much is required to take as a loan.
- Eligibility Criteria
Once the loan amount is decided, the eligibility criteria are the primary factor to consider when applying for a home renovation loan. Lenders have various parameters for the eligibility criteria, aside from the essential criteria that include age, income, and residence. Homeowners should inquire with lending organizations to understand the eligibility requirements and determine whether they can fit the requirements. Additionally, an online personal loan eligibility calculator can also help a homeowner understand the loan amount where they are possibly eligible.
- Choosing the best home renovation loan for you
For mid-range sized home improvement projects that could cost $15,000 to $50,000, a homeowner can consider unsecured or home improvement loans that are easy to apply for with no collateral requirements. However, interest rates can cost more than Home Equity Loans or Home Equity Line of Credit (HELOC).
- Exploring different loan rates
Before settling on a particular loan rate, it is helpful for homeowners to do some research to compare the interest rates of available lenders. Regardless of the type of loan a homeowner chooses, it is also essential to know that the final interest rate can depend on many factors, including credit history and repayment capacity.
- Repayment tenure and EMI of the loan
It is also crucial to note the repayment tenure and carefully plan out how to pay the home renovation loan. It is recommended to use an online personal EMI calculator to understand monthly instalments, interest rates, and tenure.