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Home improvement loans provide financing to remodel or repair existing
residential properties, which is different than a construction loan for
building a new structure from the foundation up.
There are various fixed rate loan options for remodeling which can provide the necessary cash for a complete renovation, or just for doing specific home improvements. Certain projects may increase property value based on the type and the functionality of the improvements.
The most common type of financing to make improvements on an owner-occupied home is an equity loan or cash out mortgage refinance, where the lender
provides a one-time distribution of funds at closing, which
can be used to pay for projects as needed.
Another option is an FHA Title 1 loan, which offers fixed interest rates on home improvement loans up to $25,000. Usually, there is no equity or appraisal required, no pre-payment penalty, and funds are dispersed before work on the home begins.
Banks or lenders may put
restrictions on the scope of home remodeling projects, and the work
must conform to your local building requirements. Typically, you have the
choice of completing the work yourself, or using a licensed contractor.
If you are planning a major remodel that
requires a larger loan amount, remember that long term fixed rates
can make a home improvement loan easier to pay off over an extended period of
If you only want to borrow a relatively small equity 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 equity loans in terms with 5 year increments. Borrowers have a 3 day right to cancel if you change your mind.