Whatever stage of life you’re in, your home is likely going to be a big part of it, and it’s going to be something you’ll want to take care of. But home repairs or improvements don’t come cheap.
If you’re looking to make some upgrades or repairs to your home, you may be in need of a little (or a lot of) extra money. We’re going to look at different types of home improvement loans, when to use one, and whether or not you should be considering extra home improvement financing for your renovation project or repair in the first place.
When to Consider a Personal Loan for Home Improvement
When you’re trying to figure out if applying for a loan for home improvement is the right move, start by looking at your budget. For example, are you able to fit an extra monthly payment (in the form of a loan repayment) in? If so, how much? And for how long? If you’re looking to sell the home you’re renovating, how much will the renovation increase the value of the home? Will this offset the cost of the renovation?
If you want to learn more about how to build a monthly budget calendar, check out this simple guide!
Consider these questions carefully before applying for a home improvement loan. If you feel like you’re in a healthy place with your finances and you can comfortably fit the extra expense into your budget, then it may be worth it.
3 Types of Home Improvement Loans
If you’ve taken stock of your situation and decide that applying for extra home improvement financing is the right move, there are a few different options you may be able to go with depending on your financial standing and your needs. While there may be more potential options than what we’ve listed below, here are three common types of home improvement loans that may work for you.
1. Home Equity Lines of Credit
Home equity lines of credit – also known as HELOCs – are a common way to get extra funding for a renovation project.
To start with, one of the most important features of a HELOC is that it’s a secured loan. In order to qualify for a secured loan, you’ll need to pledge some sort of asset as collateral. This means that if you default on your loan, the financial institution that gave you the loan will still be able to get some sort of payment. In the case of a home equity line of credit, the collateral you’re putting up is your actual home.
Another important feature of a HELOC is that it’s a form of revolving credit. This means that it’s similar to credit cards or other types of lines of credit, in that you’ll be given a credit limit to borrow against. You can generally borrow from your HELOC anytime during the draw period, and you only have to pay charges on the funds you take out.
If your home improvement project is going to be a long one and you don’t know exactly how much money it’ll cost you, a HELOC may be a useful option. If you need more or less money than you thought you would, you can adjust the amount you draw from it accordingly. Just keep in mind that the stakes are high if you don’t repay what you’ve borrowed. In the case of a HELOC, missed payments can lead to eventual foreclosure on your home.
2. Home Equity Loans
If you’re looking to take on a big home improvement project but don’t want to apply for a HELOC, a home equity loan may be another option for you. One of the big distinctions between the two is that with a home equity loan, you’ll get your money in a lump sum that you’ll then typically repay in fixed, regularly scheduled installments. The length of your repayment period can vary, but considering that the loan amount is likely on the higher side, you’ll usually pay it back over the course of several years.
If you know the exact cost of your renovation project, a home equity loan can be a good option. The scheduled and fixed rates of the repayment process can make it easier for you to work these payments into your normal budget.
3. An Unsecured Personal Line of Credit
This type of personal loan is less of a home improvement loan and more of a way to help you handle an unexpected but essential home repair that you can’t afford with your emergency fund alone.
Unlike the first two entries on this list, these personal loans are unsecured, meaning you won’t need to provide any collateral to qualify. Instead, a financial institution is going to decide on your creditworthiness by looking at things like your credit score, your income, and more. This also means that because you’re not backing your application up with collateral, these loans may come with higher loan rates than with a secured loan.
Just like HELOCs, an unsecured line of credit is a form of revolving credit. Depending on the financial institution you’re working with, you may be able to request a draw and receive your money as soon as the same business day. This is an important detail to keep in mind because when it comes to using these as a personal loan for home improvement, they should really only be used to help with emergency repairs like water damages.
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