Home improvement loans are a particular type of loan where the borrowed funds are used to make additions, improvements or repairs to your home or to the property on which the home is built. Using a home improvement loan in order to make modifications and enhancements to you house will result in an increase in the property value and will allow for a higher selling price in the event that you decide to sell your home. A home improvement loan can be either secured or unsecured, but is generally secured by the equity you already have in your home. In other words, the home itself is used as collateral to secure the loan.

Where to Get One

Home improvement loans are available through various sources including banks, credit unions, finance companies and other financial lending institutions. Usually, the first place to make your loan inquiries will be with your current lender. You will often obtain the best interest rate from a lender where you have already established a relationship. If what they have to offer is not appealing, there are many reputable financial lending companies who can provide a home improvement loan via the Internet. A quick search will provide many loan options.

Government Assistance

There are many state and federal government agencies that will provide a home improvement loan. These agencies usually have very strict criteria that must be met but they are definitely worth investigating. The US Department of Housing and Urban Development (HUD) website provides a wealth of information on the subject.

The Federal Housing Administration (FHA) is part of HUD and administers various single family mortgage insurance programs that are operated through FHA-approved lenders. The FHA approved lender will submit an application to have the property appraised and have the buyer’s credit approved. These lenders will then provide the loans which are insured by HUD. HUD does not make the loan itself.

The Section 203(k) program is the HUD program for the repair and rehabilitation of single family properties. Many lenders will partner with state and local housing authorities to provided Section 203(k) home improvement loans to assist borrowers. The place to start looking at this option is with a FHA approved lender or with the Homeownership Center in your local area. HUD also publish a helpful brochure called “Own a Home and Home Improvements”

What Can You Use the Funds For

While funds from a home improvement loan are frequently used to conduct major repairs such as installing a new roof or replacing outdated plumbing, many people utilize the funds for remodeling a kitchen or bathroom, landscaping a yard, adding a room or a garage or even adding an entire second floor to a single story home.

Getting the Most From Your Loan

Before committing to the loan and signing the documents ensure that you are receiving the best possible terms and interest rate. In addition, if you take out a $10,000 loan and the renovations or repairs you make to your home increases its value by, say, $15,000, then your home improvement loan can be considered an extremely worthwhile investment.

Alison Stevens
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