Options in Home Improvement Financing

For all the potential reasons for improving an existing home, getting the required financing is the first step in the process. Recently purchased homes may have come at a lower asking price due to needed improvements. Sometimes a change in health requires modification to a house or property.

Certainly expanding your family can dictate changes to your home by way of additions or the improvement of existing space. All of these scenarios, and many more, will have substantial costs. Fortunately, homeowners have several options for acquiring the cash needed to afford repairs and modifications.

Home improvement financing is available in many forms. Private lending institutions will back most. Your own mortgage lender is a good place to start but a smart borrower will investigate the potential of more than one financing opportunity. Some possible solutions include independent lenders focused specifically on home improvement loans, government funded borrowing programs such as Title 1 loans and home improvement dealer financing.

Traditional equity loans are available from banks and lending firms. Typically, these are applied for through the same company that holds the mortgage to the property to be improved but financial institutions will compete for lending opportunities through favorable interest rates and qualifying loan amounts. There are two types of home equity financing available to most home owners.

The home equity loan and the home equity line of credit are both based on accumulated payments toward the original mortgage but are distinctly different with regard to how they are used. A home equity loan is a lump sum payment. Essentially a homeowner applies for and qualifies for a single check that will be paid back with interest over a predetermined period. Home equity lines of credit provide access to a predetermined amount that can then be borrowed against in smaller portions as financing becomes necessary.

Choosing between the two largely depends on the type of improvements that the home owner intends to perform. For large scale projects, a loan is a good choice because it provides a large amount of funding that will cover all the necessary costs in one transaction. A line of credit is ideal when the home owner is approaching a long term project one phase at a time.

Government loans can be a more affordable way to secure improvement funds. Private institutions that have their loans insured against defaults by the federal government provide title 1 loans. There are caps on interest making this type of loan generally less expensive.

There are two important considerations with Title 1 loans. First, qualifying amounts are typically smaller than traditional lending firms provide. Second, home owners will have to very specifically show plans and costs of improvements. Title 1 loans are great if you need a moderate size loan and can handle a lesser degree of flexibility with the borrowed amount.

Home improvement dealer financing refers to loans provided by suppliers and installers of the required improvements and modifications. Very similar to financing a car or appliance, many businesses that provide home improvement goods and services will finance their own work. This can be a very good option for home owners that have very specific goals in mind.

To ensure you get the financing that is most appropriate for your situation be sure to thoroughly investigate and fully understand all the options available to your individual needs.