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A home improvement loan for remodeling can provide tax
deductible money for either a complete home remodel, a loan for specific home improvements, which may increase the
value of your property based on the type remodeling projects, as well as functionality.
The way it usually works is
by using equity from your owner-occupied home, and the lender
pays you the full cash amount of the home improvement loan at closing, which
can be used to pay for projects as needed.
Home improvement loans are used to improve existing
residential property, which is different than construction loans for
building new structures.
Lenders normally do not place
any restrictions on your improvement projects, as long as they
conform to your local building requirements. You have the
choice of completing the work yourself, or using a licensed contractor.
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If you are doing major home improvement that
requires a larger loan amount, remember that long term fixed rate payments
can make loans easier to pay off over an extended period of
If you only want to borrow a relatively small loan, and
pay it off quickly, a line of credit can provide more
flexibility with the convenience of withdrawing money in variable
amounts as needed. However, variable loan rates have the potential of increasing.
Lenders usually offer terms in 5 year increments, and the equity requirement varies, as high as
100% of appraised value.
When a loan is secured by a home that is your primary residence, the interest
portion of the payments may be deductible up
to 100% of the value. Check with your tax advisor for details.