The Ultimate Guide to Home Renovation Loan Rates

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The Ultimate Guide to Home Renovation Loan Rates

Did you know that home equity has soared due to the rising home prices? Most homeowners have seen home equity increases, adding $200,000 to their original prices. 

In the midst of a global pandemic and an unstable housing market, most people have (rightfully so) chosen to either repair their current homes or getting homes that are fixer-uppers. Yet, most of us don’t have piles of unused cash that we can use for home renovation. That’s where home renovation loan rates can make or break our plans.

Suppose you’ve been thinking about getting a home renovation loan, no worries. We’ve got your back. Keep on reading for our full breakdown of everything you need to know when it comes to your home renovation loan options.

What Is a Home Improvement Loan?

In simplest terms, a personal loan intended to fund home improvements and repairs are known as a home improvement loan.

You may be able to utilize it for a big project, like a kitchen or bathroom renovation, basement restoration, garage construction, or pool installation. The loans may also be utilized for minor projects, like replacing your windows or adding solar panels to your house.

Home renovation loans are sold separately from personal loans by certain lenders.

Main Characteristics of Home Improvement Loans

Usually, there’s no collateral required. Home renovation loans, like most personal loans, are unsecured.

This implies they won’t ask for collateral, which means your home won’t be in danger if you can’t make payments. Interest rates are higher than on secured loans.

Like other unsecured loans, home renovation loans have higher interest rates than secured loans like home equity loans or property equity lines of credit (HELOCs), which utilize your home as collateral.

Next, you have monthly installments and a fixed APR. Fixed interest rates and monthly installments over a specified number of years are common features of home renovation loans.

As a result, you’ll know precisely how much your loan will cost, and you’ll be able to plan appropriately.

Besides, quick lump-sum financing is available. In as little as one to three days, a lender may be able to deposit a home renovation loan into your bank account. Loans are available in quantities ranging from $1,000 to $100,000.

Should You Use Home Renovation Loan Rates to Get Home Improvements?

It is debatable. Home improvement loans have higher interest rates than home equity loans and HELOCs since they are unsecured.

However, if you want to utilize those financing alternatives, you’ll have to put your house up as collateral. You’ll also need adequate equity in your house, which is the gap between the amount you owe on your mortgage and the value of your property. The size of your equity determines the amount you may borrow.

You won’t need equity to get a home renovation loan, and you won’t have to worry about losing your house. However, if you fail on your loan, you may anticipate a significant decrease in your credit score, as well as a default notice that might remain on your credit record for up to seven years.

If you have excellent credit, qualifying for a home renovation loan is typically easier than applying for other kinds of financing, such as home equity loans. In such a scenario, proving income and work may be all that is required.

Even if you have bad credit, a personal loan may be an option. With good to outstanding credit, you’ll almost definitely receive the greatest interest rates, but if you have a solid work history and use credit responsibly, some lenders may still give you a loan.

Understanding Specialized Loans: The HELOC Edition

HELOC (Home Equity Line of Credit) is a revolving credit line that you may use as needed. HELOCs are similar to credit cards in that you may take out as much as you need at any moment, up to your credit limit.

The amount you pay each month is determined by the current interest rate and the amount you owe. You have the option of paying it off over time or all at once. HELOCs are an excellent choice for projects that are smaller, less costly, or ongoing.

The draw phase of a HELOC allows you to use your credit line as much and as frequently as you need, while paying down the interest each month. You will start the repayment phase after a specified period of time (usually 10 years). You are no longer able to withdraw funds from your credit line.

Instead, when the loan is completely amortized throughout the balance of your term, you will make monthly payments on the interest and principal.

How to Compare Home Improvement Loans

Pre-qualifying and shopping around may help you discover the best loan with the greatest rate and features. These are a few key things to consider when comparing home renovation loans.

First, the APRs (annual percentage rates) reflect the loan’s total cost, including any fees charged by the lender. If you’re a credit union member, it may be the best place to start. Federal credit unions have a maximum APR of 18%.

Second, the loan amount. Some lenders have a $35,000 or $40,000 maximum loan limit. If you believe your project will cost more than that, seek a lender that will give you a larger loan.

Third, the loan duration. A long repayment period may have cheap monthly payments, but you’ll pay more interest throughout the life of the loan than a shorter payback term. You may use a home improvement loan calculator to estimate payments on loans with various terms.

Fourth, you can add a co-signer or co-borrower to your loan application. Some lenders allow you to add a co-signer or co-borrower to your loan application. Including someone with superior credit or a higher salary on your loan application may help you lower your APR or borrow more money.

Getting a Home Improvement Loan

To apply for a home renovation loan, compare lender offers to other alternatives, verify your rate and monthly payments, prepare papers, and then apply. Of course, you can take the high-quality shortcut and check out the Plenti Home Improvement Loan

Now, let’s have a look at each step.

Start by considering your choices. Compare and contrast the top home improvement lenders with other financing alternatives, such as credit cards and home equity loans. You’re searching for the one with the lowest overall interest cost, manageable monthly payments, and a timeframe that works for you.

Next, you’ll want to examine your interest rate and monthly installments. This phase should help you estimate the cost of your project. Before applying for a personal loan, many online lenders and banks allow customers to pre-qualify to view possible offers — but you’ll be asked how much you want to borrow. A gentle credit draw is used in this procedure.

Now, it’s time to prepare the necessary papers. Gather the papers you’ll need to apply after you’ve decided on a lender. W-2s, paystubs, proof of residence, and bank information are examples of what you may need.

Send in your application. Smaller banks and credit unions may need you to apply in person, while bigger banks and internet lenders often provide online applications.

Many lenders may decide within a day or two of receiving your application. After that, the money should appear in your bank account within one to seven business days.

Alternative Finance Options

Your house is not required as security for all remodeling loans. There are a variety of different loans available to assist you in making home renovations.

We’ll explore them one option at a time. 

Personal Loans and Credit Lines

Unsecured loans, such as personal loans and lines of credit, do not require you to put up collateral, so you don’t have to worry about losing your home or vehicle if you can’t pay back the loan.

Personal loans are faster and easier to handle and approve than refinancing or home equity loans, since they need less documentation. The advantages revolve around not needing home equity or collateral.

Also, there’s no need for an assessment, which is a huge plus if your house is in bad shape. In most cases, you’ll be getting quick access to funds.

On the other end of the spectrum, we have disadvantages. First, you’ll see higher interest rates than average, particularly for consumers with bad credit.

Loans are only available up to $100,000. And, personal lines of credit are revolving lines of credit that enable you to borrow as much as you need up to the credit line’s maximum.

Ready to Give Your Home a Makeover?

If there’s anything we’ve learned from spending way too much time in our homes, it’s that we haven’t been treating them right. 

Yet, home renovations don’t have to break your finances completely. We hope that our guide has shed some light on how you can get the best home renovation loan rates for your needs. 

And, if you’re hungry for more information on how to improve your home, then you’ll want to check out our other blogs. Start by skimming through our real estate and lifestyle sections for all the tips and tricks you could possibly need. 

Read More: Three Things Not To Do While Renovating Your House

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