What Is a Home Improvement Loan?
Whether you want to make a few upgrades to your kitchen and bathroom or you're looking to completely remodel your house, a home improvement loan will probably be necessary to finance the project, unless you've got a stash of cash lying around. Before you borrow, it's important to understand that a home improvement loan is specifically for work on your house, and not to be confused with a home equity loan, which can be used to pay for a number of other things.
Loan Purpose
A home improvement loan allows you to borrow money to fix up your home. This could mean anything from installing a new kitchen, adding another bedroom, finishing a basement or repairing a roof. As with any loan, the amount you can borrow to make home improvements depends on your credit history and your income. Lenders look at your loan-to-value ratio, which considers the value of your house and the amount you still have to pay on your mortgage. If you have some equity in your property and your credit and income are stable, a loan may be easy to obtain.
Title I Property Improvement Loan
When you lack equity in your home, you can apply for a program through the Federal Housing Administration (FHA) called the Title I Property Improvement Loan. You can get this loan from any bank and, per the National Housing Act, the FHA insures the loan. These loans are meant to increase a home's usefulness and livability. You cannot use the money for luxury improvements like swimming pools, but you can use the loan to make your home accessible for someone with a disability. According to HUD, the interest rate is negotiated between the borrower and the lender, and the maximum loan amount depends upon the type of property you have and the improvements you plan to make.
FHA203(k) Mortgages
You can make improvements to your home and refinance your mortgage at the same time with an FHA203(k) mortgage. This is desirable for many homeowners because you can borrow based on what your home will be worth after the improvements, not its present value. Don't expect a blank check, however. Loan limits are strictly regulated and they vary depending on the county or city the property is located in. You pay your home improvement loan off for 30 years, since it's rolled into the refinance of your mortgage.
Local and Nonprofit Loans
You can receive funding from other sources than FHA. Many home improvement loans are supported by your local housing authority or available through nonprofit organizations that focus on affordable housing. When you improve your home, you also improve your neighborhood, so many local groups help people borrow money for improvements. An example is MASS Housing, which is a Massachusetts organization that helps property owners improve local rental housing.
Tax Deductions
Your home improvement loan must be used to make capital repairs if you want to deduct the interest you pay on that loan from your taxes. To qualify as a capital improvement, the work must increase the value of your property, prolong its life or make it adaptable for other people. Putting on a new roof, building a porch and installing a swimming pool are all considered capital improvements. Repainting the bedroom, fixing a leak and replacing broken tiles do not qualify.
Loan Purpose
A home improvement loan allows you to borrow money to fix up your home. This could mean anything from installing a new kitchen, adding another bedroom, finishing a basement or repairing a roof. As with any loan, the amount you can borrow to make home improvements depends on your credit history and your income. Lenders look at your loan-to-value ratio, which considers the value of your house and the amount you still have to pay on your mortgage. If you have some equity in your property and your credit and income are stable, a loan may be easy to obtain.
Title I Property Improvement Loan
When you lack equity in your home, you can apply for a program through the Federal Housing Administration (FHA) called the Title I Property Improvement Loan. You can get this loan from any bank and, per the National Housing Act, the FHA insures the loan. These loans are meant to increase a home's usefulness and livability. You cannot use the money for luxury improvements like swimming pools, but you can use the loan to make your home accessible for someone with a disability. According to HUD, the interest rate is negotiated between the borrower and the lender, and the maximum loan amount depends upon the type of property you have and the improvements you plan to make.
FHA203(k) Mortgages
You can make improvements to your home and refinance your mortgage at the same time with an FHA203(k) mortgage. This is desirable for many homeowners because you can borrow based on what your home will be worth after the improvements, not its present value. Don't expect a blank check, however. Loan limits are strictly regulated and they vary depending on the county or city the property is located in. You pay your home improvement loan off for 30 years, since it's rolled into the refinance of your mortgage.
Local and Nonprofit Loans
You can receive funding from other sources than FHA. Many home improvement loans are supported by your local housing authority or available through nonprofit organizations that focus on affordable housing. When you improve your home, you also improve your neighborhood, so many local groups help people borrow money for improvements. An example is MASS Housing, which is a Massachusetts organization that helps property owners improve local rental housing.
Tax Deductions
Your home improvement loan must be used to make capital repairs if you want to deduct the interest you pay on that loan from your taxes. To qualify as a capital improvement, the work must increase the value of your property, prolong its life or make it adaptable for other people. Putting on a new roof, building a porch and installing a swimming pool are all considered capital improvements. Repainting the bedroom, fixing a leak and replacing broken tiles do not qualify.
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