Using Home Equity Loans To Make Home Improvements

January 24, 2009 by · 6 Comments
Filed under: Blog 

Home improvement loans can provide money for a complete home remodel or specific home improvements. These upgrades can transform your house into a home and increase your property value. Another benefit is that the money is tax deductible. As long as you carefully evaluate your fincancial situation, you may use a home equity loan to make home improvements.

Home improvement loans are not the same as construction loans. Construction loans provide financing for building and completion of a new structure. A home improvement loan is essentially a home equity loan placed on your existing home that you currently occupy. The lender generally pays you in one lump-sum at closing. This is also sometimes called a second mortgage loan.

Home equity loans are great if you only want to borrow small amounts of money for home improvements and pay off the loan in a short amount of time. A home equity line of credit can create flexibility and convenience by giving you the ability to withdraw money in varying amounts as necessary. However, home equity credit lines generally use adjustable interest rates and this carries the potential risk of increasing over the life of the home equity loan.

Lenders rarely place restrictions on home improvement projects as long as they are conform to your local building requirements. Depending on the size of the home improvement project scope of the job, you may do the home improvement work yourself or hire a general contractor. Be certain you read the fine print on your home equity loan for home improvements because some lenders may require you to hire a contractor for the project which can significantly increase the cost of your home improvement project.

Terms for home equity loans can range from 5 to 25 or even 30 years. Some lenders offer fixed rate as well as balloon rate options. The minimum amount you may borrow for a home equity loan is generally about $10,000. You can most often times borrow up to 100% or, in some cases, even as much as 125% of the value of your home. However, most lenders will limit a home equity loan for home improvements to a maximum of $1,000,000.

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Comments

6 Responses to “Using Home Equity Loans To Make Home Improvements”
  1. jolifrijoles says:

    How to finance home improvements without equity loans? I want payments based on loan terms GREATER THAN 15yrs!?
    I am so irritated with the catch-22 of home improvement. You can’t get a loan without having equity (i just bought 4 months ago), and in this market you sure aren’t going to get equity without boosting the value of your home by making improvements, which of course requires money.I was prequalified for 3 times the mortgage I got, but this place needs a LOT of work. I was naive in thinking that since i prequalified for so much more that I could easily find home improvement funds. To an extent, that’s true– I can get personal loans with decent interest, but they’re on a 5-7 year payoff. I’d prefer to roll it all into a 30 yr mortgage so I’m not too burdened with the payment. I also don’t like the 203 loans because they require you to use licensed contractors for everything. A lot of it I could do myself. I’m guessing I could do it all with about $20-30K if I do what i can myself. If I go the contractor route it’s probably about 50K. I don’t want to put this all on credit cards. Are there any options other than 5 yr loans and credit cards, or 203 loans to get the money to do this stuff and pay it off in 15 years or more??? I’m about to give up. Thanks

  2. SmartA$$ says:

    You're right, that is a catch 22. Perhaps you could take the 5-7 year personal loans for the home improvements. Then after the repairs/upgrades are completed, get a new appraisal to show that you have equity, then get a 2nd mortgage, a HELOC, or refinance altogether to pay off the shorter term personal loans.

    The other thing you could do, although its a bit risky, is to play the "introductory rate game" on credit cards. Get a card with a very low introductory rate. Use it to do the repairs. Then before the introductory rate expires, call your bank and threaten to transfer the balance if they don't extend the low rate. If they don't extend it, transfer the balance to a different card with a low introductory rate. You can usually pull this off for a while if you have good credit, but sooner or later you have to pay off the debt. Its a big risk because if you aren't able to get low interest fiancing against the equity in the house, you will eventually run out of low introductory rate credit card offers and you'll be stuck paying high interest on this balance while it sits on a credit card.
    References :

  3. golferwhoworks says:

    Fact-Think about the improvements you want to make. Are you adding sq ft. if not then you will no see a lot of appreciation in your improvements. Things like replacement windows are nice but the house has windows now so not a huge benefit is it. If adding additional feet then get the money from some place else and do your improvements then get the home refinance into one loan is your best option as if these cost 30k and your improvements give you say 60 in value it should work. BUT before you do this call your realtor back and see just how much the new footage of the home will bring up the value. In other words do your homework
    References :

  4. 40something says:

    In this market, the bank is going to want to see 20% equity or more before they would consider lending you any more against your home. Do you have that? If you’re paying PMI you should probably pay for these improvements without using your home as collateral so you can hopefully remove the mortgage insurance.

    Don’t use what you qualify as a guide to what you can afford. I think recent history has show us that lenders don’t have a good idea of what people can really afford.
    References :

  5. kemperk says:

    as my peers said, be careful about making improvements just
    to make them.

    if you find some improvements essential, use the
    Oriental method; save your cash. Pay for the improvements
    with cash.

    OR, TRADE service for service on the improvements;
    [risky too]
    References :
    RE broker

  6. Judy says:

    How much you prequalified for is irrelevant. The house itself has to be worth what lenders will loan on it.
    References :

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