With people spending more time in their homes due to COVID-19, it’s the perfect time to consider applying for a home improvement loan and updating your house so you can be happy with the environment you’re in most.
Maybe it’s time to remodel the kitchen, upgrade out-of-date appliances, or add a deck to help open up your outdoor space. Making these improvements will increase the value of your home if you decide to sell it later on.
However, making these improvements can be expensive, which is why you want to consider applying for a home improvement loan.
What Is a Home Improvement Loan?
A home improvement loan is defined as any sort of financing you take out for home improvement projects. The different types of financing products in this category include personal loans, home equity loans and home equity lines of credit.
Types of Loans
There are several types of loans you can qualify for. Here are some worth considering.
Personal Loans
A personal loan is a type of unsecured debt. This means the money you pay isn’t connected to any personal collateral, like your house. If the loan isn’t repaid, the lender can’t take away your home. These loans allow you to get money quickly and all at once.
Home Equity Loans
Home equity loans are a type of secured debt. This means the loan is tied to the equity in your home. If you don’t repay the loan, the lender can legally take your home.
It’s important to understand what equity is. Equity refers to how much of your home you own after paying off your mortgage. For example, if you have $150,000 left on your mortgage, and your home is worth $200,000, you have $50,000 in equity.
Home Equity Lines of Credit
Home equity lines of credit are similar to home equity loans in that it’s still based on the equity of your home. The difference is that you can access the funds for the loan on an as-needed basis. This type of loan may come in handy for a long-term renovation project.
Things to Consider Before Applying for a Home Improvement Loan
Make sure you are fully prepared before beginning the loan application process. Take these steps to get the best possible outcome.
1. Evaluate the Benefits of the Project
When investing in a loan for your project, consider how much value the renovation will add to your home.
For example, investing in fixing roof damage will save you money later on, especially if there is a severe storm or intense heat exposure. Adding improvements that increase your home’s value allows you to earn cash back, since you’ll be able to ask a higher price when listing your home.
2. Know Your Eligibility
Before applying for a loan, do some research to understand which loans you qualify for. You should look into your credit history using sites such as Credit Karma or Experian. Make sure you have a clear record of paying your bills on time to demonstrate your reliability.
Typically, a FICO score of 620 or higher is needed to get approved for a loan. Once you determine your eligibility, meet with different lenders to compare interest rates to make sure you get the best deal.
3. Consider the Best Type of Loan
A personal loan is more beneficial if you need funding quickly. One example is if you’re trying to do renovations before a baby is born. Since it is an unsecured loan, your interest rate will be based on your credit score and will be fixed.
The positives are that you can borrow money in smaller amounts without worrying about how much equity you have. The downside is shorter repayment periods and higher interest rates. The home equity loan is better for long-term projects and is typically cheaper.
4. Budget for Repairs
When you’re ready to start making improvements to your home, make sure you have the money saved in the bank. One way to do this is by budgeting. While spending money on personal items can be tempting, it’s good to save some extra cash for any future home repairs.
A good rule is to set aside 1% of the purchase price of your home each year for potential repair costs. This way, you’re able to get the most out of your loan.
How to Get the Best ROI
Using these loans to make improvements will help increase your home’s resale value. This way, the money you paid for the loan you earn back in return. Here are some suggestions for home improvement projects that will give you the best ROI.
Turn the Attic Into a Bedroom
By turning your attic into a bedroom, you are creating an area that is likely to be used more often and is a feature that attracts potential buyers. Consider spending the money to add a bathroom, strengthen the flooring and add insulation. These improvements can lead to an 83% ROI.
Remodel Your Bathroom
Remodeling your bathroom can increase your ROI by around 65%. Consider updating certain features, like toilets, sinks or showers, to boost your home’s value. Outdated bathrooms can turn potential buyers away.
Upgrade the Kitchen
Remodeling your kitchen can result in an 85% ROI. Consider replacing countertops, repainting the walls, or updating cabinets or flooring. The kitchen is often an important selling feature for potential homeowners because they will be spending a lot of time there.
Replace Doors
Upgrading entrances, such as a steel front door, can also increase your home’s value. Stylish doors can make your home appear more attractive to visitors or people passing by. Updating your garage door is another way to boost ROI.
Suggestions for Home Improvements
Give a Space a New Purpose
Do you have an unused dining area with no idea how to redesign it? Try turning it into a green room, where you can showcase your plants and flowers while enjoying the beautiful scenery.
Another idea is to turn the space into a home office. With so many people now working from home, having that space to focus is essential. The unused space can also be turned into an entertainment area to play games or jam out to music.
Add New Features
Another thing to consider when thinking about improving your home is adding or upgrading certain features, such as windows, doors, floors, roofing, or interior or exterior trim. These projects often have a high ROI. For example, the average ROI on a new roof is 109%.
You could also consider remodeling rooms in your house that are outdated style-wise or aren’t used as often, like the kitchen, bathroom, basement, or attic. Merely adding new paint to the walls can help spruce up a room and add character.
Make Repairs
Consider using your budget to do repairs, such as fixing your roof or gutters. This way, you’re protected from any future damage due to the weather.
For a larger project, consider looking into your electrical system and plumbing. Also, make sure to check on your heating and cooling system. Now that we’re spending more time at home, it’s important to know that everything is running smoothly.
Add More Kitchen Storage
If you have empty shelves or wall space, take advantage of it by adding additional cabinetry or placing dishes and frequently used cookware there. This will make cooking and preparing meals much easier.
Embellish Your Walkway
Consider adding a frame around your doorway to make it stand out. Adding some plants or stepping stones leading up to the walkway can also spruce up your entryway a bit more.
Repolish Hardwood Floors
Wood floors can pick up lots of dirt and debris due to heavy use. Consider using specifically designed polishing material to add shine back. It is recommended that you polish your floors at least once a year.
Start Improving Your Home Today
The pandemic has caused people to be stuck indoors, leading to an increase in home improvement projects. However, they can be expensive, and it’s important to know how to get started by taking out a loan.
First, know the difference between personal and home equity loans. Then, it’s all about checking your loan eligibility and budget and determining which loan is best for you based on your current project.
About the Author
Rose Morrison is the managing editor of Renovated, where she covers home improvement and real estate trends. To see more of her work, follow her Twitter.
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