If you have got all the plans approved and have drawn up the approximate costs for your home improvement project, you need to start thinking about how to finance the project. Any minor improvements can be financed by a credit card or savings but a major improvement, like an extension or a loft conversion requires a large chunk of money. There are various ways of getting this money. One such method is the home improvement loan. This article will cover how a home improvement loan works and some things to consider before you go for one.
Getting an home improvement loan depends on the type of modification or renovation you are planning. If, for example your home is an old building it may be eligible for a restoration grant. The same might apply in certain parts of the country where you plan to install solar powered energy panels. Check this out at your local town planning offices first, it could save you money on any other loans you take out.
After that, there are a few other home improvement loan options available.
The simplest is probably a standard unsecured loan. This is just like a personal loan that you take out for other things you need, like a car or white goods. Criteria for this type of loan may include things like your salary, your credit score or your ability to pay the monthly repayments installments.
Other types of loans revolve around securing the debt of the loan around the house that you are renovating. You can renegotiate the mortgage with your current lender. They will probably give you the money at the current rate of the existing mortgage. You will be negotiating altering the term of the loan or the amount for the repayments.
A note on this is that you can often renegotiate the mortgage if you have shopped around before hand and know that you can get a better deal elsewhere in terms of interest rate (or other criteria that you feel are important – a payment holiday for example) .
If you have equity in the house you can draw down on this equity to fund the renovation. The equity can be in the form of a lump sum or a line of credit (whereby you can effectively use the equity as a credit card and take out money when you need it).
When going for these types of loans, it helps to know what is involved in the home improvement. Will it be completed in stages? In this case you probably want a line of credit or a loan where the lender releases the amount in chunks. This will save you money over time as you are not paying interest back on one lump sum that may just be sitting in your account.
You may also choose to refinance your home loan completely if you can find a better rate. This has the advantage that you get a better rate or conditions that will save on monthly repayments and you can draw on the equity in the property.
When taking a loan secured by the property, lenders want to see that the improvements will add more value to the property than the loan itself. They will want to know the new value of the house after the improvement and the cost of doing the improvement. A real estate agent can give you an indication of the added value. In terms of the costs, get a few quotes from builders or a break down on the materials if you are doing the renovation yourself.