If you are itching to get started on a new home improvement project but find yourself without the saved funds, a home improvement loan can help.
Whether you're looking to refinance to remodel or you just need extra money to fix up your home, you can select from different types of loans for every need. As long as you are eligible, you can borrow money from a financial institution and make upgrades to the place that's most special to you — your home.
Key Takeaways:
When you are considering making renovations to your home but don't have the cash upfront to pay for the projects, various options can make it possible for you.
A home improvement loan allows homeowners to borrow money for their renovation plans when they don't have the savings to pay out of pocket. Home improvement needs sometimes sneak up on homeowners. Renovations can be very expensive, rack up tens of thousands of dollars, and many homeowners just don't have the funds saved for home repairs.
Different types of home improvement loans exist for your benefit. Whether you are looking into doing a full remodel or just want to renovate a room in your house, you have options for nearly every need.
Funds from these loans can go toward both crucial repairs and fun, voluntary projects. If you have outdated plumbing that needs immediate replacing, for example, a loan can help you address these problems promptly, even when you find yourself with little time to save.
If you have a room you'd like to transform into your own sanctuary, a loan can also cover costs from this project even though it's not a necessity.
Many homeowners who borrow money via a home improvement loan do so to either boost their home's value or make their house more enjoyable to reside in.
Common uses of home improvement loans include the following:
You could spend your loaned funds on tons of projects.
Now that you know what home improvement loans are commonly used for, let's review specifically how these loans work.
The first step in getting a home improvement loan involves deciding what projects you want to complete. You should identify the repairs or renovations and how much they will cost.
If you have your own funds to pay for these projects, that's always preferable. For those times when you don't have the savings but are ready to get started, you can opt for a home improvement loan instead.
Once you understand approximately how much you will need to spend on your project, you can start looking for a financial institution to lend you the money.
You can get home improvement loans through one of the following institutions:
When choosing a financial institution, you must explore their home improvement loan options as well.
Again, you can choose from a few different types of home improvement loans. When finding the right one for you, you'll have to check out the qualifications.
Some loans have prerequisites for minimum credit scores and a certain amount of equity in your house. You'll want to make sure you meet the minimum before submitting your application. Once you know you qualify for the loan, you'll need to go over every detail, including:
Some financial institutions share pre-approval letters if you are eligible for the loan.
Once you've found a loan type that makes sense for your home improvement needs, you'll need to get your information together to apply for it.
Depending on the type of loan, most institutions ask that you provide the following:
You will then submit an application accompanied by this documentation and wait to hear back.
If the institution approves your loan application, you could receive the funds any time over the next several days or weeks, depending on the type of loan.
Every loan has different terms, and you should pay close attention to the details. Ensure you are ready when the time comes to start making periodic payments to repay the loan.
The various types of home improvement loans fall into two categories, and both pose advantages and disadvantages. In short, a secured loan uses a person's property as collateral to support it, and an unsecured loan has no collateral attached.
When collateral connects to a secured loan, financial institutions are more likely to extend the following:
If you neglect to pay back your loan, the bank can seize your collateral as payment. The Federal Trade Commission (FTC) notes that you can anticipate borrowing up to 85% of your home's equity.
It's best for borrowers with a poor credit history or no credit whatsoever to opt for a secured loan. You can even use secured loans to rebuild your credit and boost your credit score.
Unlike secured loans, unsecured options don't require collateral. These types of loans are also sometimes called signature loans because, as long as you meet the lender's requirements, a signature is the only thing needed to borrow the money.
Financial institutions often use a person's credit score to determine whether to give out an unsecured loan. This loan type also typically comes with higher interest rates and lower terms than those of a secured loan.
There is not an overall best type of loan for home improvement. Your project and financials will determine which one serves best for you.
Three common types of secured loans for home improvement projects include:
And the following two are types of unsecured home improvement loans provided by Midland States Bank:
In the simplest terms, a home equity loan is a secured loan in which you can use the equity you built in your home as collateral to borrow money from an institution.
Financial institutions give home equity loans to borrowers in a lump-sum payment. The amount of money will depend on a few different factors, like the financial institution, the amount of equity you have available, and the project you need to fund.
With a home equity loan, it's best to have a predetermined budget before spending. This way, you know how much you can spend and how much you'll repay every month.
Borrowers pay back these loans in fixed installments over a set period. Be prepared to pay both principal and interest as part of these monthly payments. Remember that the shorter your loan term is, the higher your monthly payment will likely be.
Home equity loans also typically have longer repayment terms, perfect for a 10-year home improvement plan.
A home equity line of credit (HELOC), another type of secured loan, also uses your home equity as collateral.
This collateral provides added security for the financial institution, and borrowers can enjoy a lower interest rate compared to an unsecured loan type.
A HELOC gives the borrower access to a line of credit for their ongoing needs as they pay for home improvement projects.
While home equity loans have fixed interest rates, HELOC rates vary by institution. And instead of supplying the money in a lump sum, HELOC provides funds as needed.
Most banks will not extend HELOCs to a borrower unless they meet certain requirements, such as the following:
With a cash-out refinance, you can use the equity in your home to pay for your next renovation or repair. This secured loan type fits into the category of mortgage refinance.
When you opt for cash-out refi for home improvement projects, you take out a new mortgage on your home. This mortgage will be more than what you owe on the home loan you currently have, but less than your home's current value. Then, you will receive the difference between the loan balance at closing and the new amount you borrowed.
You may be able to do the following when you refinance your mortgage at most financial institutions:
If you are interested in a loan that does not require equity in your home, then an unsecured home improvement loan may be the best option for you. Because no home equity is required, an unsecured loan is often easier and much faster to get than other types, such as home equity loans.
The terms and amounts available for unsecured home improvement loans will vary based on financial institutions. Midland States Bank's Rapid Home Improvement Loan offers loans up to $25,000 — plenty for most renovation projects. You can enjoy fast cash, meaning the process to get your funds is usually quite speedy. Loan terms usually have longer periods as well. Midland offers up to as much as 15 years*.
Many home types are eligible for this home improvement loan without equity, including the following:
Borrowers typically have fixed payments for home improvement loans, so you'll never face any surprises and can easily budget around your payments.
Another type of unsecured loan offered by Midland States Bank is the Believable Banking Home Improvement Loan. Only select neighborhoods can receive this loan program. The Census Bureau determines which neighborhoods are eligible for this type of program. This affordable home improvement loan program offers many benefits, including the following:
The Believable Banking Home Improvement Loan is an affordable option, but your home's location must qualify for this type of loan.
Another way to borrow money for home improvements that won't take tons of time is by applying for a credit card.
These monetary solutions are handy for ongoing projects that you don't anticipate costing tons of money but are just outside your budget. One of the greatest benefits of using your credit card to cover home improvement costs includes the opportunity to accrue rewards. Just remember that it's important to pay off your balance each month to avoid paying more on interest.
When looking into getting a home improvement loan, you will want to think about some important factors. Consider the following three points before you sign any papers:
Before applying for a loan, you should understand how your project will benefit your home and you.
Many home improvement efforts boost a home's value and allow you to receive a greater return on investment (ROI) if you choose to put your house on the market.
Beyond increasing your ROI, repairing parts of your house can save you money in the future. An example of this would be fixing a leak in your roof to prevent further damage in the face of a storm or another type of flooding event.
It's crucial to do some prior research before applying for a loan. Make sure you are eligible for one according to the financial institution's terms and conditions.
Review any documentation you have regarding your income and financials. It can be especially helpful in getting approval if you can present a record of paying your bills on time and in full. This information helps demonstrate that you are an attractive candidate for a loan.
Don't just apply for any and every loan available. Instead, do your research and find the type that makes the most sense with your home improvement project and financials. Consult with a banker if you have questions or concerns about what kind of loan you should seek.
With an understanding of the different types of home improvement loans, you can determine the loan that makes the most sense with your project and its needs.
Midland States Bank is a strong and growing diversified financial services company that prides itself on being more than a bank. We offer various home improvement loans that provide an affordable pathway to creating your dream home.
Learn more about home improvement loans from Midland States Bank today, and fill out our contact form when you're ready to get in touch!
Disclosure
Your loan terms, including APR, may differ based on loan purpose, amount, term length, and your credit profile. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice.
*Loan fee of $150. Payment examples: Tier 1 loan category ranges up to $10,000 and 120 months: Monthly payments for a $10,000 loan at 6.317% APR with a term of ten years would result in 120 monthly payments of $112.67. Tier 2 loan category ranges from $10,000.01 to $25,000 and up to 180 months: Monthly payments for a $25,000 loan at 7.084% APR with a term of fifteen years would result in 180 monthly payments of $225.88. These examples are estimates only and assumes all payments are made on time. Please contact bank for details.
