Understanding Your Home Improvement Loan Options
What Are the Best Home Improvement Loans?
You may have purchased a fixer-upper that needed repairs and updates from the start, or you may have lived in the same home for years and be ready to complete a major overhaul. As soon as you decide to make major improvements to your property, you may be eager to hire contractors, apply for the best home improvement loans and start seeing results around the house. However, before you jump headfirst into this significant project, it makes sense to carefully plan out and prepare your options. In this article, we have outlined the best home improvement loans for you to consider.
What is a Home Improvement Loan?
Loans are a sum of borrowed money that you must pay back. There are so many different types of loans out there. So, what exactly is a home improvement loan? This specific type of loan allows you to borrow money for home projects or home improvements, such as renovations. Most of them come unsecured as a personal loan, but you can opt for a secured option and get a larger sum of money.
2 Types of Home Improvement Loans
1. Unsecured
This type of loan is known as unsecured because you do not need to put up collateral to apply for it. Typically you would need to offer something of value or security, such as your car or house. With this type, this is not needed.
Getting approved will depend on the speed and time available to pay back the loan. Credit score history and employment positioning will matter too.
These types of loans are best for smaller renovations, such as bathroom updates.
2. Secured
This is also known as a home equity loan. Unlike the previous loan option, with a secured loan you are able to borrow a larger amount of money. Typically the value you receive will match that of your home.
Again, credit card history, finances and employment matter when applying.
A home equity loan is better for larger projects that require more money, such as structural fixes.
So, What is the Best Home Improvement Loan?
There's no right or wrong answer when it comes to this, as each type meets peoples' different needs. If you are doing a small project, opt for an unsecured loan. If your project is big, opt for a secured loan.
Here are some considerations to keep in mind when it comes to unsecured and secured loans:
- Unsecured: if you fail to make payments, a County Court Judgement (CCJ) could come against you, meaning your credit score would take a blow.
- Secured: if you fall behind with payments, your house could be repossessed.
Now that you know about the different types of home security loans, you need to know what to do before applying for one.
First, Create Objectives or Goals
You may have plans to take out a home improvement loan to pay for at least some of your project, but you cannot know how much money you reasonably need for your home improvement efforts if you do not have a list of goals in mind. Consider breaking your list up into essential improvements and desired improvements. Many people must make tough decisions about what to include in their final plan based on a limited budget. By prioritizing your goals, you can make these types of decisions with minimal stress. A smart way to prioritize goals is to focus on tasks that can improve your family's daily living experience before you focus on aesthetic improvements.
Next, Prepare a Budget
Now that you have a basic understanding about what you want to accomplish through the completion of the project, you can explore the home improvement financing aspect and consider how you will pay for the labor and materials. Analyze your personal finances to determine how much cash you plan to use versus how much money you need to borrow. Gather estimates from contractors for the various tasks that you need or want to be completed. Assemble a budget based on legitimate quotes rather than assumptions. Remember to incorporate a contingency plan into your budget as well. This will help ensure you do not run out of money prematurely.
Then, Select Materials
Labor is only one factor that contributes to the total cost of your home improvement project. The other critical factor is the cost of materials. The cost of materials varies dramatically, so you can expect this aspect of your planning efforts to have a major impact on your budget. For example, laminate counter tops are much more affordable than granite or Corian counter tops. You may find that your budget limits you to the use of specific materials, or you may decide to narrow down the scope of your efforts so that you can afford higher-end materials on the work that is completed.
Applying for Home Improvement Financing
Through these combined steps, you will have a better idea about how much money you need as well as how much money you can realistically afford to spend. A great way to obtain extra cash is to take out home improvement loans. You can take out a secured home improvement loan, such as by using your property as collateral. You can also take out an unsecured loan. Because unsecured loans do not require collateral, they generally have a higher interest rate. When you are searching for a home renovation loan or home improvement loan, ensure that the monthly payment is affordable for your budget going forward.
By completing your home improvement project, you may boost your home’s value and increase your ability to sell it quickly when you decide to do so. In the meantime, you may enjoy improved functionality and aesthetic appeal during your remaining years in the home. If you have decided that now is the right time to get started with a home improvement project, begin the process by walking through these essential preparatory steps.
