The Quick Guide to Home Renovation Loans
You long for fresh kitchen cabinets and countertops. You crave a new patio for the backyard. You’re eager to install a stunning new roof complete with energy-efficient solar panels.
Home improvements don’t have to wait until you have enough money upfront to cover the cost. In many cases, home renovation loans are available to support the project. Use this quick guide to home renovation loans to learn more about this resource and get started with your improvement project.
What Is a Home Equity Loan?
A home equity loan is a loan that permits homeowners to borrow money in a lump sum for large purchases, home improvements, and more. Lenders determine the equity of this loan based on the home’s current value and how much the homeowner has remaining on the mortgage payment.
These loans are commonly referred to as “second mortgages.” While you may already have a credit union mortgage loan to pay for the house itself, it’s important to remember that the “second mortgage” uses your home as collateral.
Collateral is the asset a borrower uses in order to secure a loan from the lender. Failing to make payments puts the home in jeopardy of repossession by the lender.
There’s a Difference Between Home Equity Loans and Lines of Credit
Home equity loans are different than home equity lines of credit. Equity loans are given to customers as a lump sum, with a fixed rate and a predetermined time frame to repay the loan.
Home equity lines of credit (HELOC) are great to use for home improvements, consolidating debt, or paying student loans. Once the lender calculates your home’s equity and the HELOC is approved, you can draw money as you need it.
Homeowners can borrow up to 80 percent of their home’s equity. Although the interest rates can fluctuate, you will only pay interest on the amount you request instead of the full credit line.
Always Save Up Some Money Before Applying for a Loan
The loan will help fund a large portion of the improvement project. Nevertheless, it’s not a bad idea to have some money saved up, just in case.
You’ll make monthly principal and interest payments toward the loan. This additional cost can impact your past monthly budget. With more money in your savings account designated to pay off the home equity loan, you can live more comfortably during the renovation process.
Savings can also assist you with any unexpected costs during the renovation. Say you requested a $10,000 loan, but the project itself ends up costing $13,000. You would be responsible for paying the additional $3,000 out of pocket.
Having extra money on reserve for financial fluctuations during the project is a safe way to conduct home improvements.
GFA Federal Credit Union can provide the proper loan that will allow you to embark on the home improvement journey of your desires.