How Does a Home Improvement Loan Work?
Home improvement loans are not necessarily characterized as such. All loans can conceivably be used as home improvement loans. However, there as some loans that must be used to rehabilitate or improve a property. These loans are often sponsored by the federal government.
HELOC
HELOCs (Home Equity Lines of Credit) are loans that use available equity in the home to secure a second mortgage. These loans do not alter the first mortgage; rather, they use the remaining equity in the home. These loans are often used to make home improvements as customers can borrow, repay, and re-access the credit line.
Personal Loans
While personal loans are often not thought of as home improvement loans, smaller ones can be used to improve the value of a home. For example, an $8,000 personal loan can secure energy-efficient appliances (like washers, dishwashers, and refrigerators) for homeowners. These loans, however, often carry higher interest rates than traditional home improvement loans, as they're unsecured.
HUD Title I
The Housing and Urban Development Department is an arm of the Federal Government. Title I loans are used specifically to make home improvements to a property. These loans are financed by private lenders but are insured by the Federal Housing Administration. The benefit of these loans is that they're easily acquired, and often need no more than a signature for financing.
HUD 203(k)
HUD 203k loans are similar to Title I loans, but more involved. These loans are used for both financing of a home (or refinancing), and home improvements. Some borrowers, especially those who shy away from two loans (like a first mortgage and HELOC), prefer one mortgage that will meet all their needs. The proceeds of these loans must be used in part for home improvements.
Straight Refinances
While a HUD-sponsored loan may be the best choice, you can obtain a refinance loan that will give you cash out for home improvements as well. These loans are made through private mortgage brokers or loan officers. Make sure the broker or loan officer reads you the HMDA (Home Mortgage Disclosure Act) script--it is a federal requirement.
HELOC
HELOCs (Home Equity Lines of Credit) are loans that use available equity in the home to secure a second mortgage. These loans do not alter the first mortgage; rather, they use the remaining equity in the home. These loans are often used to make home improvements as customers can borrow, repay, and re-access the credit line.
Personal Loans
While personal loans are often not thought of as home improvement loans, smaller ones can be used to improve the value of a home. For example, an $8,000 personal loan can secure energy-efficient appliances (like washers, dishwashers, and refrigerators) for homeowners. These loans, however, often carry higher interest rates than traditional home improvement loans, as they're unsecured.
HUD Title I
The Housing and Urban Development Department is an arm of the Federal Government. Title I loans are used specifically to make home improvements to a property. These loans are financed by private lenders but are insured by the Federal Housing Administration. The benefit of these loans is that they're easily acquired, and often need no more than a signature for financing.
HUD 203(k)
HUD 203k loans are similar to Title I loans, but more involved. These loans are used for both financing of a home (or refinancing), and home improvements. Some borrowers, especially those who shy away from two loans (like a first mortgage and HELOC), prefer one mortgage that will meet all their needs. The proceeds of these loans must be used in part for home improvements.
Straight Refinances
While a HUD-sponsored loan may be the best choice, you can obtain a refinance loan that will give you cash out for home improvements as well. These loans are made through private mortgage brokers or loan officers. Make sure the broker or loan officer reads you the HMDA (Home Mortgage Disclosure Act) script--it is a federal requirement.
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