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If you need money to fix-up your house, you may be interested in taking out a home improvement loan. You have several choices to make during the process. Read on to learn the steps involved in how to get a home improvement loan.
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Tips on Getting a Home Improvement Loan
- 1. Choose the type of loan that meets your needs
- 2. Choose a reputable lender
- 3. Get necessary paperwork for loan application
- 4. Determine how much money you need to borrow
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In the video, "Matt" explains what type of federal home improvement loans are available. The Federal Housing Authority or FHA has a low interest home improvement loan for major repairs such as a new roof, a plumbing project or remodeling your kitchen. The 203K loan can be taken out after you have bought your home or at the time of home purchase. The 203K streamline loan can be taken out after the purchase of your home and gives you up to $35,000 for major upgrades to your home. The 203K loans are not for adding an addition to your home.
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Introduction
- Whether you're looking to fix-up a new house, or redo the avocado tiled bathroom you've been living with for 20 years, you'll need to pay for the project. If you don't have cash in the bank, a home improvement loan may be your answer.
Step 1: Which Home Improvement Loan?
- A home improvement loan is a generic term used for money that you borrow to use to make structural improvements, such as repairs or additions, to your house. Although you could theoretically use any type of debt to do this, there are several types of borrowings which are customarily used for this purchase.
- Original first mortgage
- If you know when you buy a house that it's going to need work, you can borrow enough money for both the purchase and the improvements.
- Refinance your mortgage
- If interest rates have come down since you bought the house, you may be able to do a cash out refinance, and keep your month payments similar to what they are currently.
- Second mortgage
- A second mortgage, or home equity loan, can be used to access equity you've built up in your home, without affecting your first mortgage.
- Home equity line of credit
- If you don't know exactly how much the project will cost, you can investigate taking out a home equity line of credit which can be drawn down as needed. Most lines have provisions that allow you to convert portions of the line to home equity loans at fixed interest rates.
Step 2: Select a Lender
- Although you'll probably start by asking your current lender for a quote, you should investigate a variety of options and get competitive quotes. Interest rates, closing costs, and type of loans will vary, so check with different lenders to see which one has the loan that is right for you. Check with banks, local credit unions, and several mortgage brokers.
- Banks, Credit Unions and Savings and Loans
- Mortgage brokers
Step 3: Apply for the Loan
- The process of applying requires completing a loan application, which may be done in person, on the phone, or online. The lender will review your credit score, as well as the application, and will also appraise the property as part of the process. You'll also need to provide documentation to the lender that supports information on your application. Some of the documents you'll need to supply are:
- Recent pay stubs
- W-2s and tax returns
- Contact information for your employer, as the bank will verify your current employment status
- Information about your assets, such as bank accounts, stocks, and personal property
- Information about your debts
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