Options for Home Improvement Loans

   
   
 

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.

What options are available for a home improvement loan? Financing programs include fixed rates, adjustable rates, zero points, and some banks offer a no equity loan option for home improvement. For example, Key Bank has a fixed rate loan with no collateral, which means no equity is required. A loan based on credit rather than home equity also means the interest is not tax deductible.

The most common type of home improvement loan on an owner-occupied residence 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 remodeling 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 time.

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 loans in 5 year term increments. There are typically a zero points home improvement loan options as well. Borrowers have a 3 day right to cancel if you change your mind.