Home Improvement Loans

Learn How You Can Finance Your Upgrades

As a former Realtor, I have walked through hundreds of houses. It is amazing how much difference a fresh coat of paint and a few simple home improvements can make. One thing I have noticed is that when houses look fresh, up-to-date and in good condition, they tend to sell faster and for more money than their competition. Even if people have no intention of selling, it is important to keep your house well-maintained. Part of property ownership is the need to periodically replace items that have worn out or become functionally obsolete. In addition, you may want to make improvements that will keep you warmer in the winter, or that will lower your energy bills. Whatever your reasons, whether you are trying to sell your property or just want to enjoy the benefits of having a home that is in good condition, financing the improvements can be a significant challenge. Most people cannot simply write a check for all of the improvements they may wish to make. As a result, below you will find some options for home improvement financing.

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Home Improvement Loans

One of your first options may be to get a home improvement loan quote from your local bank or credit union. If you only need a modest amount of money to make the desired improvements, and you have a good relationship with your bank, you may be able to take out a personal loan for the necessary amount without being required to take out a home equity loan. The interest rate may be more than an equity loan's interest rate, but it should be significantly less than paying credit card interest to finance the improvement. Getting a home improvement loan from your bank or credit union is a particularly attractive option if you do not have much equity in your property.

Home Improvement Mortgage Loan

Home improvement mortgage loans are also called home equity loans or equity lines of credit.  These types of loans are typically only available if you have sufficient equity in your house to cover the amount you are borrowing.  Home equity loans are also called second mortgages.  You make payments on them just as you would your first mortgage.  The interest you pay is deductible on your income taxes.  In a home equity loan, you borrow a set amount of money, and use it any way you wish, including to make home improvements.  An equity line of credit is similar, except you get a type of credit card against your home equity.  You only make payments based on the amount you have actually borrowed.  The advantage is that you only borrow exactly the amount that you need, and you don’t make payments until you have actually borrowed the money.

 There are disadvantages to getting home equity loans.  The primary disadvantage has become obvious to the millions of people who recently discovered that they are “upside down” in their home mortgages, because the value of their property has declined.  If you borrow all or most of the equity out of your house to make improvements, or for other purposes, you risk the chances that you could lose your property if you go through financial difficulty.

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Home Improvement Store Consumer Credit Cards

If you believe that you could pay off the cost of the improvements your house within a year or two, then you may choose to use a consumer credit card from a home improvement store such as Home Depot or Lowes.  Often these stores offer a grace period as part of their credit card agreement.  If you pay off your purchase within a certain period of time, you will not pay interest.  For example, with a Lowes consumer credit card, you will pay no interest if you pay off the purchase amount in full within 18 months.  After that, you will pay interest on the unpaid balance; the interest amount will vary, depending on your credit rating.  Lowes also offers a project card that allows you to stretch the payments out up to 10 years.  You pay no interest for the first six months.  However, if you are going to need a large amount of money to complete your project, you would be smart to shop around to find the best financing available.

Home Improvement Programs

If you are disabled, elderly or have a low income, you may also be able to take advantage of various government grants and low interest loans to make essential home improvements.  Sometimes these grants and loans can be used to make modifications to the property so a disabled person can remain in their house, or to improve the home's energy efficiency if you are a low-income homeowner.  If you believe that you may qualify for one of these programs, you can call the National Residential Improvement Association at (877) 591-2672 or complete an online application at nria.org.  This organization stays current on the various grants and low interest loans that are available to consumers.

Home Improvement Tax Credits

In addition to government grants and low interest loans, both federal and state governments sometimes offer home improvement tax credits when people make improvements that will increase their home’s energy efficiency.  You can also contact the National Residential Improvement Association to see if there are any tax credits in your area that cover the particular energy efficient appliances or similar items that you are planning to purchase.  In addition, inform your tax professional about any home improvements you have made in the previous year when you file your tax returns.

Poor Choices for Home Improvement Financing

There are some home improvement choices that may not be worth the cost of financing.  In other words, there are things you might want to do to your home that will not increase the value of your property.  To borrow a significant amount of money, possibly from the equity in your home, may not always be a wise business decision.  If you decide to make these improvements strictly for your own enjoyment, knowing in advance that they will not add significantly to the value of your home, then that is your decision, especially if you can pay for them without having to go into debt.  However, it is not a good idea to put yourself and your family under financial stress in order to make these changes. 

Here are some of the changes that will not significantly increase the value of your home:  swimming pools, elaborate landscaping, and excessively expensive upgrades.  Although some people like swimming pools, others want to avoid them.  In either case, they do not increase the resale value of a home nearly as much as they cost.  The same is true for elaborate landscaping.  Your buyer may love it, but they aren’t going to pay significantly more for a well-landscaped house than they will for one with average landscaping.  Finally, even if you are in love with your imported, hand-painted Italian tiles, designer wallpaper, or hand-woven rugs, your future home buyer may not be willing to pay any more for your home than they would for one with more typical design features.  The same can be said for high-end kitchen appliances, heating systems, dishwashers, etc.  You should only decide to do these things for your own enjoyment, as you can afford them.  Do not do them because you think you will get the money back when you sell the property.  Because of this, it is not wise to borrow against your home equity to make these types of improvements.

If you are interested in reading more about maintaining, improving or selling your home, you may also be interested in the following articles:

Home Improvement Products that Transform Your Home and Some to Avoid

Stage a Home for Sale

Becoming a Realtor: Think Safety

Finding the Home of Your Dreams

Make Sure Your Understand How Mortgages Work

Mortgages For Dummies
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Great information that will be useful for any homeowner or prospective home buyer.