When it comes to home owners seeking financial options to remodel their homes, have fixer upper projects or simply make some aesthetic improvements to the house, not much is available to them. One of the most common financing options home owners tend to choose is to take up a new personal loan.
Also referred to as unsecured loans, personal loans can be taken from a bank, a credit union or any other financial institution that give personal loans without having a lien on the house involved. However, the draw back on not having a lien on such personal loans is that the interest rates charged by the companies on such loans is very high compared to many other equivalent loans in the market.
The other draw back with personal loans is that they are generally taken for small amounts. Hence they may not be a feasible and a viable option if you are a home owner looking for a large-scale fixer upper of your current resident. To come to the rescue for home owners looking for large-scale house improvements, such as building a new section on the current property, the Federal Housing Administration and the California Department of Veterans Affairs have started to issue home loans for such large-scale home improvement projects. However, for you to qualify for these specific loans, you must meet some eligibility criteria set out by these departments.
Finance options that fall under the category of mortgages are often home equity loans, home equity line of credit (also known as HELOC) or cash-out financing. Let us take a look at what each of these mortgage finance options mean. A cash-out financing options helps home owners to draw upon and use existing equity from the current property so they can free up their liquid cash and assets. With this finance option, home owners talk to their current financial institution or another to refinance their existing mortgage borrowing a higher amount.
A home equity loan, on the other hand, is a one in which a lien is placed on the home and in exchange you get cash from the lender. A HELOC differs from a home equity loan because in it the loan is a lump sum however with HELOC it behaves more like a credit card with a continuous line of credit. With HELOC, you may interest only the amount that you borrow and you also enjoy the flexibility of varied repayments based on your paying back capacity at the end of each month.
This is another very common form of financing that home owners indulging in big-scale home improvements tend to take. In this case, the financial institution gets into a contract with the builder that you engage for your home improvement project. The contractor does not engage in the nitty gritty and you, as the home owner, pay back the money borrowed. Although this is a great line of credit to use, home owners must make sure they read the contract thoroughly to flag anything they don’t understand or have a problem with.
Depending on what your home improvement project entails and how much liquid cash you need to take your house to the next level, you can use any of the above financing options as soon as you understand their pros and cons completely and are satisfied that is the right financing solution for your need.