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Home Renovation Loans: What You Should Know

Making improvements, upgrades, and repairs to your home is a wise investment as they increase the value of your home. Depending on your financial situation, there are countless ways to borrow money in order to fund these projects. 

No Equity Required Home Improvement Loans

When many people think of borrowing money to make home improvements, they think of home equity loans or lines of credit. The value (or equity) of your home is what secures the loan, potentially allowing you to fund any update or project. A no equity home improvement loan is one that provides excess funds to a borrower that is beyond the available equity. Without much equity as a new homeowner, a home improvement loan can sometimes be difficult to get. 

Securing a home improvement loan with no equity doesn’t have to be a daunting task, though. The application process can be faster than for a traditional home equity loan, because there is no need for an appraisal it is not uncommon to get your loan money in a matter of days. Finally, when you figure out how to get a home improvement loan with no equity, you don’t need to worry about losing your house if you can’t make your loan payments. In the end, whether you get a home improvement loan with no equity depends on your goals and financial situation.

Personal Loans

Home improvement loans are personal loans used to fund home repairs and renovations. “Instead of basing the loan on a home’s value, lenders evaluate personal loan applications based on factors like a person’s credit score, credit history, and creditworthiness,” said Abhinav Anand, the head of consumer lending at Goldman Sachs Bank USA. Securing a personal loan may be a good option for you if you’re starting on your very own fixer-upper!

Title 1 Property Improvement Loan

If you need to borrow $7,500 or less, it’s possible to get a loan insured by the U.S. Department of Housing and Urban Development (HUD). HUD doesn’t issue the loan, but it works with private lenders to help you get funding to make repairs, improvements, and alterations to your home — all without requiring you to secure the loan with a property. However, you have to show you have the “ability to repay the loan in regular monthly payments” — what this means can differ since the ability to repay is interpreted by the lender and the government agency insuring the loan.

Cash-Out Refinance (Mortgage Refinance)

A cash-out refinance is another way to access the value that has accumulated in your home. A cash-out refinance is a refinancing of an existing mortgage loan, where the new mortgage loan is for a larger amount than the existing mortgage loan, and you (the borrower) get the difference between the two loans in cash. Your interest rate may increase slightly due to the larger loan amount, but typically this kind of refinancing can be done even without great credit, which is good for the first time homeowner.

With all these options available to help you remodel, all you have to do is decide which one works best for your unique financial situation. If you are still unsure of which option is right for you, consider reaching out to a financial consultant in order to make the most informed decision!

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