Once upon a time, owning your own home was the American Dream that everyone aspired to. It was something that generations would work toward and then pass on through inheritance or sale when they had become financially stable.
While this may have been true in the past, many people are now being forced into renting rather than buying because of certain circumstances. Maybe you lost your job, maybe your credit isn’t good enough, or maybe you just aren’t financially able right now.
Whatever the case may be, not everyone is ready to take out a mortgage for their dream house right now. But if you are determined to improve your circumstances by making some renovations to spruce up your current residence and make it more comfortable for yourself and possibly even guests, there are several types of loans you can take out to accomplish this.
Here is a list of the most common home improvement loans and a brief description of what makes them different from one another:
1. Home Equity Loan
This loan allows you to borrow up to a certain percentage of the amount that your house is worth at a low rate, which will allow you to get started with making renovations right away. However, it does have its drawbacks because once these renovations have been made, you’ll have to pay back the entire balance borrowed plus interest in monthly installments, so not only will it affect your disposable income, but these payments will continue even after you sell your house or complete all necessary repairs.
2. Line of Credit
A line of credit is a good option if you don’t know how much money you will need or if your renovations are going to be spread out over time. With this type of loan, you’re free to borrow up to a predetermined amount and then pay it back at your own pace, which means that any further home improvements you may want to make in the future can be completed without having to apply for another loan. However, interest rates on lines of credit tend to be rather high, so while they allow for more flexibility than other loans, they won’t help save you any money.
3. Construction Loans
This type of loan is perfect if you already have plans drawn up for your home improvement project and want the entire process to be completed in a timely manner. In this scenario, you’ll pay out the loan in stages as you complete each part of your project and receive the necessary funds from the lender to move on with construction.
4. USDA Renovation Loan
If you want to increase the value of your home for future resale but don’t have a lot of money just lying around, this is an excellent choice. USDA loans are specifically designed for individuals who live in designated rural areas and will help bring a better quality of living to their communities. These loans can be used to make improvements such as adding a deck, a new bathroom, or central heating and air conditioning system.
5. Home Acquisition Loans
This type of loan is usually taken out by first-time homeowners who have saved up a bigger down payment than what would typically be required for that particular mortgage program, which means you can put less money down upfront but have a higher monthly payment. It also comes with no penalty fees for paying off the balance early, so if your credit score improves or if you need to make an early repayment for any reason, it won’t cost you extra like it might with other loans.
6. Home Improvement Loans
These loans are great for large projects because you can borrow up to a certain percentage of your home’s value while having the option of paying back the loan over either 5 or 10 years, whichever is more affordable. This means that you could potentially make all of your renovations in one shot instead of having to pay out several smaller loans over the course of several years, which can make things easier for your family.
No matter what type of home improvement loan you ultimately decide to take out, it’s always a good idea to shop around before signing any contracts because you might find that at the end of the day, some lenders will offer you better rates than others on certain loans.
Home improvement loans can be complicated, but which one would work best for you really depends on the type of project that you’re planning to undertake and what your own financial goals are as well.