Your home portrays your accomplishment and status. It reflects your pride. It is more than just a roof and structure and gives you pleasure and comfort with a glimpse of satisfaction.
This means the condition of your home matters. The ambience of your rooms sends an important message and creates an impression not only to you but also to your guests.
Therefore, you must take good care of your home, do a regular renovation, and replace broken and futile parts.
Nevertheless, the home renovation process can be costly and strenuous. Buying new paints, taps, tiles, and other necessities for renovation plus labour can strain your budget significantly.
But there is no point in worrying or waiting till you have enough money to cater for your renovation budget. Thanks to home improvement loans. How much do you know about home improvement loans?
The following article will provide a comprehensive guide on how home improvement loans work.
What Is a Home Improvement Loan?
Home improvement loans are financing given out by lenders to facilitate home renovation projects such as remodelling the kitchen, recreating a room, adding a bathroom, and revamping the interior, as well as essential upgrades, door replacement, and garage repair, depending on their outlined terms and conditions.
How Do Home Improvement Loans Work?
Home renovation projects can be financed either through secured or unsecured debts. The two have some slight differences.
Secured debts- collateral is required to secure this loan. The collateral will act as insurance if you default on paying your debt or loss.
Some of the assets you can use as collateral include a car, investments, saving, or mortgage.
Nevertheless, using them as collateral will depend on the lender, loan type, and value. You can also use other properties, such as land, as collateral to secure this home improvement loan.
Unsecured debt- unlike secured debt, which requires collateral, unsecured doesn’t require any. In this type of loan, the lender risks by increasing the interest or annual percentage rates (APR).
Once you qualify for any of these, the lender will finance your renovation project, depending on the amount you are eligible for.
Why Should You Consider a Home Improvement Loan?
Though you can fund your home renovation projects in various ways, home renovations have vital benefits that will make you think twice. They include;
1. Lower Interest Rates
Apart from unsecured loans such as personal loans, which have higher interest rates, home improvement loans have lower interest rates, especially compared to commercial bank loans.
Several factors determine interest rates. One major factor is risk. The interest rates will be high when the risk is higher from a lender’s standpoint.
Secured loans such as home equity loans are less risky to the lender. This is because your house will be used as collateral.
In most cases, the interest rate is equivalent to your equity. In addition, you will be eligible to get a loan of up to 85% of your total equity.
A second major factor that determines interest rate is the FICO credit score. The higher the score, the lower the risk, which leads to lower interest rates.
This also applies during risk evaluation. Home improvement loans are less risky, especially secured loans. Based on this principle, you will enjoy a relatively lower interest rate.
Another factor contributing to lower interest rates on home improvement loans is the simple and minimal documentation required in the application for the loan.
This makes the process quick and less laborious. Minimal documentation means less paperwork and labour, leading to lower overall costs on the whole process.
2. Tax Benefit
Home improvement loans can fetch you a tax benefit, especially on the interest. You can apply for tax deduction at a certain percentage for the interest you pay on your home improvement loans. However, this policy depends on laws governing taxation in your state.
A tax deduction is applicable when you are repaying your home improvement loan. Nevertheless, when you apply for a loan to upgrade your swimming pool or other luxurious home parts, you may not qualify for a tax deduction.
According to the income tax act, you are eligible for a tax-deductible on the interest payable on a home improvement loan. The tax-deductible percentage, however, depends on the government policies and your lender.
3. Minimal Documentation
Home renovation has little and simpler documentation than securing loans from banks and other financial institutions.
Most lenders require the borrower to provide basic information, photographs, income proof, and a property title deed.
However, these requirements may defer depending on the lender, but you can be sure there is a slight disparity.
Documentation also becomes simpler if you have previously taken a home improvement loan with the same lender.
When dealing with an online lender, there is no paperwork. You only visit their website, fill out the online form, scan and upload a few documents (if requested), and submit your application. It is simply a paperless process that you will enjoy.
In addition, since it’s a paperless process, it saves you from the hassle of moving to a lender’s offices, which is a significant advantage when it comes to time-saving.
Further, online and paperless applications save you the cost of typing, printing, and photocopying your documents.
4. Quick Processing
Home improvement Loans are processed and disbursed quickly. As mentioned earlier, processing can take a day or two.
This is due to minimal documentation and requirements, making it hassle-free. This means you don’t have to wait long before starting your renovation project.
For example, the online application process is very quick, taking almost 72 hours. Once you have filled out your online form, the processing starts immediately.
The computer can easily verify and validate your details within the shortest time possible. After your details are verified, your loan is then disbursed immediately.
Some lenders provide helpful online tools that make the processing quick and convenient. For example, loan eligibility and EMI calculators. Such a tool helps you to know the amount you are eligible for and the repayment terms.
This enables you to apply for a loan with your limit and fill out the forms appropriately, especially when outlining repayment methods. Moreover, it quickens the process, as the lender won’t have to request you to revise and fill out the form again.
A home improvement loan is a friend in need. Rescue you from the struggles of waiting until you accumulate enough to renovate your house, which is sometimes unachievable.
The low interest and minimum documentation make it perfect, especially when you dearly need the money to revamp your home.
You will not have to wait for weeks or months to get feedback. It’s a matter of days before you kick off your project.Share on Facebook «||» Share on Twitter «||» Share on Reddit «||» Share on LinkedIn