When you want to apply for a personal loan, one of the critical considerations is often the reason why you want the funds. You have to examine yourself and if you really need the funds before sending an application. Besides, you will be required to point out precisely the reason why you need the funds to the lenders for the loan to be approved. If the loan officer fails to convince the lending committee that you indeed have a good reason for applying, the application cannot be accepted. And today we want to focus on one of the main reasons why individuals borrow: home renovation.
Undeniably, renovating your home can transform it significantly, making it more comfortable and efficient. Nevertheless, the main reason for home remodeling is mainly making it more valuable. If you have equity, getting funds for renovation is more of a guarantee. In fact, if you use equity as security, it is possible to be approved for a considerable loan but at low APR. But as we have mentioned, this option requires that you have equity, and you don’t care about risking your home.
We are often advised to save funds for this purpose and pay cash. Even so, in many cases, it is not realistic to do that, easier said than done. There has been a constant need to borrow for home renovations, especially in Singapore. Learn more about money eligibility and their ratings for loans by checking loan advisor top 10 reviews. But now the question is, which loan can you use for this purpose? Well, if you have to borrow, there a lot of options for you. Let us look at the specific loans you can use for home improvements.
If the project is not costly, a personal loan can serve you better. In fact, it is the easiest solution in this regard. The fact that the loan is personal means you can use it for whichever purpose. There are so many personal loan lenders out there and so where to borrow cannot be challenging. So, why do we say personal loans might be the best option? For the following reasons:
- Inexpensive and easy. While applying for personal loans, we always consider the overall costs of the loan. Incontrovertible, the closing costs in personal loans are significantly lower compared to other alternatives. Additionally, the loan application process is not as complicated as the case with a home equity loan. Also, you will not be required to pay for appraisals along with other services to be approved. The fact that personal loan does not require collateral makes it an excellent choice.
- Quick repayment. Unlike home loans which may extend up to 30 years, personal loans are supposed to be repaid for not more than 10 years. Even though the payments are going to be high, you will not be plagued with inconveniences that come with that for decades. Besides, you will be able to save on interest rates.
- Interest rates. Indeed, personal loans always have higher interest rates compared to home loans. For this reason, you will have to assess your options critically. However, if you have excellent credit and prove the ability to repay with a good income, the rate might be less than 10%. But remember credit cards are part of personal loans and the interest in them may go up to 20% for individuals with bad credit.
Home Equity Loans
As we mentioned earlier, personal loans can work best if the project is inexpensive. Costly projects might require that you apply for a loan against the equity in the property. A second mortgage may be essential in this regard. Consider the following benefits:
- Lower rates. Using your home as collateral means lower risks from the lenders’ standpoint and so you can be offered a loan at relatively lower rates. You will be compelled to repay by the fact that defaulting is severe. Failure to make loan payments increases the risks of foreclosure, irrespective of the reason. Who wants to lose his home?
- Huge loan amounts. Unlike in personal loans, you can be approved for large loans because the loans are secured. If you have considerable equity in the home, the best and the only way of accessing the funds is through a second mortgage.
- Closing costs. While borrowing against a home has never been cheap, a second mortgage is always less expensive when compared to purchase loans or options to refinance.
You can also get funds for home renovations from refinancing. A completely new loan can substitute your current home loan, then borrow to refinance the project. Even though you will not access the funds, the cash will be available to meet the renovation costs and to acquire the necessary materials. Consider the following:
- Loan to value. If you are considering this financing option, you must be acquainted with your loan to value ratio, initialized as LVT. You will be required to have enough equity for the approach to be sensible.
- The costs of refinancing. Since you are obtaining a new loan, the closing costs may be very high. Also, you will be increasing the loan life, meaning the monthly payments will be directed to interest rather than lessening the outstanding balance. Nevertheless, you have the option of making additional payments and settle the loan earlier.
- Use the home improvement schemes for renovations.
Where can you turn to if you have bad credit or limited equity? You can be approved through a government loan program. Your lender may be working with the following programs:
- FHA Title I loan, where you can be approved for a loan worth up to $25,000 in case you lack equity in the property. In case you have a manufactured home perceived as an individual product, you can get a maximum of $7,500. However, luxury upgrades are never accounted for.
- FHA cash-out refinancing. The funds provided here can be used for whatever reason, including luxury upgrades.
- FHA 203k. This is also an excellent option, though there are restrictions on the use of funds as well as who can work on the project.
- VA cash-out refinancing.
The Bottom Line
If you are considering a home renovation, there are so many loan options. Some lenders have outstanding programs that may suit your conditions. However, some lenders may be unable to come to your aid. In this blog, we have covered the loan options you can consider. So where can you borrow? Let us consider that in our next discussion.