Generally, home renovations consume an enormous amount of funds. We are fortunate as we don’t need to have considerable cash. Some reliable home loan options are available to go for renovation. For instance, a specialized home loan – FHA 203(k) is granted to make the big home improvements. Apart from it, there are some standard loans such as cash-out refinance or a home equity loan. So, what to opt for? Keep reading to learn about 5 loan options for home improvement and which is right for you.
One most wisely way to raise funds for home improvements is with a cash-out-refinance. Here you refinance a new loan with a bigger amount than your current loan. But you pay the existing mortgage and keep the remaining funds. The money you received is of home equity and is of much use for renovation. The loan is ideal for taking if you are seeking a loan at a lower interest rate than the existing mortgage.
➤FHA 203(k) Rehab Loan
One of the best low-down-payment mortgage options is FHA 203(k). Here you don’t apply for two loans and don’t pay closing costs two times. In one go, you can go for a loan that includes the home purchase and home improvements. FHA loans are backed by the US government and have low-interest rates than other home loan improvement options. But does it mean it is suitable for everyone? What about those who already have a home? Of course, they can’t buy a new home just to avail of the renovation benefit. Moreover, the loan is applicable for older and fixer-upper homes.
➤Home Equity Loan
In a home equity loan (HEL), the borrower seeks a loan against the equity they have built. Equity is based on a home’s value subtracting the outstanding balance on the existing mortgage loan. Unlike cash-out refinance, here, you don’t pay off an existing mortgage. You continue with the monthly payments while also paying for the new home equity loan. The loan works great when you need high funds or have high home equity built up.
➤Home Equity Line of Credit
Home equity line of credit (HELOC) is the same as HEL. One difference in this type of loan works more like a credit card. Borrowers request the loan up to a pre-approved limit and, once paid then can borrow again. Another difference is the interest rate, in HELOC interest rate can be adjusted. HELOC sounds a better option than HEL if you have a few yet less expensive projects to finance on an ongoing basis.
➤Unsecured Personal Loan
An unsecured loan is another renovation loan option. It works better in case you don’t have sufficient equity to borrow. There is no collateral, and the loan can be obtained much faster. The drawback is it has high-interest rates and a payback period.
Home is a wonderful asset in everyone’s life. At a certain point in time, your home needs renovation to look nice. Perhaps, renovation is not cost-effective as it requires a significant amount of funds. So above are the 5 home loan options that are widely used. Select the one which works suitably in your situation.