Should You Take Out A Home Improvement Loan?

Taking out a home improvement loan can be an excellent step. Renovations and repairs can raise the equity of your home and prove to be an excellent investment when it comes time to sell or refinance your property. But what type of home improvement loan should you look for, and what can you expect?

A home improvement loan is generally through a credit union or bank, just as any personal loan would be, and it follows many of the same terms and guidelines. The amount you will be allowed to take out will depend upon the lender and the type of loan you are seeking (secured or unsecured), as well as your credit history and your financial prospects such as income. In these respects, a home improvement loan is no different from any other type of personal loan taken out for other reasons.

However, when dealing with home improvement loans, many lenders will be interested in the specific improvements you intend on making to your home. Most lenders have set maximum amounts for different types of renovation- for example, if you are pledging a new roof or a room addition, your loan cap will be set higher than it would be if you simply wanted to re-carpet a couple of bedrooms. Keep in mind as always that higher loan amounts mean longer repayment times and, quite often, higher terms, since those borrowing more are putting the lender at a higher risk for loss.

When it comes time to apply for a home improvement loan, keep in mind that many home renovation and repair projects go well over budget. Home improvement lenders will often offer money based on an installment plan for this exact reason: Once the work is completed, you can stop the loan before you receive any more cash, and if you go over budget, you can simply ask for another installment. This prevents you from borrowing more or less than you need. However, if you do not opt for an installment plan, it's still important to leave yourself some wiggle room in your budget. Gather estimates well before you go in for your loan, and remember that it's better to borrow more than you need than to run out of money in the middle of your project. You can always go back to the lender and ask for more, but chances are very good that your rates will rise if you're forced to do this. Not to mention, if you run out of cash before the project is done and then find that you're at the maximum amount allowed, you may put yourself in a bad position.

If possible, secure your home improvement loan against your home or your home's equity, or use other forms of collateral. The rates you receive will be much lower, and it should be easier to receive enough cash to cover your project the first time around. Remember that home improvement is a great investment- it may cost you a little at the beginning, but it'll pay back in multiples later.