Home Improvement Loan - If youre looking to take out a loan to make improvements on your home consider refinancing your mortgage.Renovation loans are also available to homeowners as well as investors. When the appriaser comes out to assess the value of the property, he or she will also take into consideration the improvements that will be made. They will report two values: as-is and after completed. A renovation loan will be based on the after completed value. The funds are disbursed similar to a construction loan.
The Department of Housing and Urban Development (HUD), through the Federal Housing Administration, offers many programs that insure lenders against loss due to homeowner defaults. The 203(k) is a program that is designed to encourage lenders to make mortgage loans secured by properties that are in need of improvements or modernizations. The loan amounts of 203(k) program are determined based on the values of the improved properties.
Also, by borrowing against your home, the interest that you pay will increase your current tax deductible mortgage interest. If you were to finance your home improvements with Credit Cards, or through a Personal Loan, the interest would not be tax deductible, and the interst rate will always be higher than that of a Home Equity Loan(Second Mortgage) or Home Equity Line of Credit.
Improvements such as kitchen remodels, room additions, bathroom additions or remodels often will raise the value of a home for a greater amount than is paid for the improvement.
In such cases, it makes good financial sense to access funds for such improvements by borrowing against the home.
When making improvements with your home be sure to make sure you have researched your intended improvements. Just because you install a $30K pool does not mean your home will be worth $30K more.
If you need to improve your home you can get the cash by refinancing. Home improvement is a common reason for refinancing. Often people increase the value of there home by doing improvements from the cash they receive by refinancing.
When looking to apply for a home improvement loan you should consider a refinance of your current 1st mortgage, a second mortgage or a HELOC (Home Equity Line of Credit). All of these options will provide you with great rates, tax deductible interest and the money you need to complete your home improvements. Home equity loans are revolving lines of credit that work pretty much like a credit card. 2nd mortgages are term mortgages that are set for a specific term such as, 5 years, 10 years, etc... Another thing to consider is that almost all mortgages and HELOC's have a grace period when making your payment, usually 5-15 days. A credit card has no grace period and if you are 1 day late more than once or twice in a 6 or 12 month period of time they will increase your rate.
Some second mortgages allow you to take up to 115% and 125% of your property value. If you're planning on making serious upgrades consider this option.
If your property is worth $300,000 the 115% loan allows you to borrow up to $345,000.
If your property is worth $300,000 the 125% loan allows you to borrow up to $375,000.
Home Improvement Loans are great for the borrower as they are able to take some of thei equity they have built and improve their investment so hopefully when they do decide to sell can get a sell at a greater price than if they had not done the home repair loan to begin with.
You can usually borrow up to 80% of the value of your home and even up to 100% in some cases - minus any liens against the property. The interest you pay is usually tax deductible. (Consult your tax advisor for exact details.) A home improvement loan can only be used for improvements performed by a professional contractor and inspections of the work are required in most cases. You can borrow from $1,000 to $150,000 with terms ranging from 3-15 years.
You can even take out a loan using the future appraised value of your home. This loan would lend off the future value as high as 90% and sometimes higher. It is best to use this loan when you are short on equity for home improvements.
Home Improvement Loans - A home improvement loan can be obtained by taking out a second mortgage or a home equity line of credit. You can utilize the equity in your home to obtain one of these second liens on your property.
The loan can be either an adjustable or fixed rate home equity line of credit. Most equity lines for home improvements will have an interest only "draw period".
Most equity lines of credit are based off of the prime rate. Your margin over or under prime will be determined by your credit profile, documentaion, and loan to value.
Home Improvement - Increase home value vs marketabilty
When contemplating a home improvement project it is important to understand the difference between improving the marketablity of your home versus actually increasing the value of your home.
While any improvement to your home inexpensive or expensive can increase the likelyhood of a faster sale, they do not necessarily increase the value of your home.
The actual value of your home is determined by an appraisal. The appraisal takes many things into consideration when determining the value of your home. Some important factors are condition, age, square footage, number of bedrooms and baths and location. Then he/she compares your home to other like properties in the surrounding area that have sold.
Don't understimate the value of proper landscaping and cleaning when showing or appraising a home. A well manicured lawn, healthy and well laid out trees & plants, fresh paint, gleaming floors, and clean exteriors go a long way toward boosting the marketability and perceived value of a property.
Some improvements that add value in the short term are: Adding square footage of living space such as additional bedroom, sunroom, playroom. Adding on a garage or deck will also increase your homes value.
Some of the best additions for adding value to a home are a second bathroom and energy efficent windows. Before you do any home construction project remember to check any local building codes and aquire the proper permits. Additions and modifications done to a home without a permit can cause trouble if you decide to sell your home at a later date.
If you have a home that is outdated then chances are you will not receive full value for the home but even if you do, it might have to sit on the market much longer than if you made some simple improvements. If your interest on your payments are $1,000 dollars a month and it sits on the market 3 extra months then you have actually spent an extra 3K on that property to get it to sell. Sometimes it makes sense to look at this and maybe take 2 or 3K and spend on paiting and misc. updates to make the home sell much faster. A good local realtor can help you determine what is selling in your neighborhood and help with the decision of where to place the money for the updates. A simple painting on the interior will do wonders for a home. But don't loose sight of the curb appeal too. If a potential buyer doesn't like the look from the curbside, chances are they won't get out to look at the inside.
