A Deep Dive Into Home Improvement Loans

Home improvement loans can be a great solution for homeowners looking to renovate, repair, or upgrade their property. While some projects may be able to be paid for out-of-pocket, other larger renovations may need to be financed. Whether you’re updating your kitchen, replacing a roof, or adding energy-efficient features, these loans can make the process possible. 

Types of Home Improvement Loans

There are several types of home improvement loans available, each with unique features and benefits. Let’s break down the most common types of loans and how they work.

Cash Out Refinance

A cash out refinance allows homeowners to replace and refinance their existing mortgage to take out a larger loan amount that covers the costs of home renovations in cash. This option extends the repayment period of the mortgage and may come with closing costs, however, you may be able to secure a lower interest rate.   

FHA 203(k) Home Improvement Loan

FHA 203(k) loans are government-insured loans that allow homebuyers to purchase or refinance a home in need of renovations. It combines a primary mortgage loan with a renovation loan. There are standard and limited loan options with different requirements and allowances. With lenient qualifications and the ability to pay over time, this loan type is desirable for many.

Home Equity Lines of Credit (HELOC)

Home equity lines of credit, also known as HELOCs, allow a homeowner with equity in their home to draw from that equity using their home as collateral. HELOCs function like other typical lines of credit, working well for people needing funds over a longer period of time. When funds are borrowed, homeowners will begin to have a minimum payment, and will only pay interest on that amount. 

Home Equity Loans

Home equity loans allow homeowners to borrow a lump sum of money using their home’s equity as collateral. This type of loan is a great option for those with a one-time need. Since these loans are secured by your home, they often have lower interest rates than other loans, but it’s important to borrow responsibly and make loan repayments on time, or your home could be at risk of foreclosure. 

VA Renovation Loan

VA renovation loans allow buyers who qualify for a Department of Veterans Affairs (VA) loan to buy or refinance a home in need of repairs. With this type of loan, the purchase price and renovation costs are combined into a singular home loan amount. Buyers will be subject to additional requirements, but it can come with great benefits.

Get In Touch

Home improvement loans can be an excellent way to fund your renovation projects, whether big or small. By understanding the types of loans available and how to qualify for them, you’ll be better equipped to make an informed decision that aligns with your financial situation. Call our team of local mortgage lenders at Coastal Custom Mortgage to get started and learn which loan options are available to you.