Home improvement loan information

What is a home improvement loan

Developments of a permanent nature, which increase the value of a property and help protect or improve the living conditions and and the utilities of the property, are referred to as home improvements. Replacements, repairs and restorations are not classified as improvements unless they enhance the value of the property. Improvements to manufactured homes, single-family homes, multifamily homes and nonresidential structures and work undertaken for the preservation of historic homes qualify for home improvements loans.

As we have already seen, a home improvement loan is clearly defined and there are restrictions to what can be done with the money. Adding an extra room, such as a bath or a bedroom is accepted. Updating existing kitchens or bathrooms are prime projects also. Generally, there is accepted the kind of job that helps increase the value of the house or at list compensate the investment after selling the house. That is why building a pool is not seen as an investment and usually not considered a home improvement. The last word in this matter belongs to the lenders so in order to clarify what is allowed and what is not, you must discuss with them.

A home improvement loan is searched for when a homeowner decides to get his house in a better shape, add some extra utilities and improve habitability. People can use the built up home equity to obtain a loan for financing these plans. Of course, the built up home equity, that is defined as the difference between the current market value of the home and the remaining mortgage balance on the home (if any), has to be positive. Home equity can help even those with a poor credit score obtain a loan at a interest rate which is much lower than the rate charged on other types of consumer credit.

A few ways to get the money

  • Mortgage refinancing – replacing your mortgage with another one that offers better conditions or with a larger one and using the cash difference for home improvement or consolidating other debts
  • Home equity – available to homeowners who can obtain a home equity loan, with fixed monthly payments of interest and principal
  • Home equity line of credit – this was an option before the housing crisis. The borrower could easily use the equity on the home and borrow a line of credit that had a revolving structure. Since the housing crisis, many lending companies froze their lines of credit, therefore, this option may be unavailable to the borrower.

Having a co-signer who agrees to assume responsibility for the repayment of the loan may help a borrower avail a home improvement loan at a better rate of interest. Credit score has great influence in getting a more favorable rate so improving this is imperative.


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