Home Improvement Loan

Home Improvement Loan Secured

If a homeowner needs to make improvements to his or her home, then he or she will most likely want to consider home improvement loan secured. Home improvement loans, also known as rehab loans, are a type of personal loan that families take out so that they have the cash they need to make improvements on their home. The improvements covered under home improvement loans include structural improvements such as roof repairs, wall or floor replacements, bathroom and kitchen remodeling, basement finishing and more. Even building a deck or shed and room additions are included as well as purchasing fire safety equipment; anything that a homeowner can do to improve on the safety and value of the home is included in a home improvement loan secured. The only exception is a multifamily structural home improvement loan secured. In this case, the only improvements allowed are those that repair or make the home safer, not solely for increasing the home's value such as repairing a floor, roof, or wall.

home improvement project loan

Types of Home Improvement Loan Secured Options

The most common form of is a home improvement loan secured, which guarantees the financial institution repayment of the loan with collateral. Collateral is the borrower's promise to repay the loan with personal property if they should ever miss payments and the loan goes into default. Collateral could include anything of value such as the home itself or other valuable property. If the homeowner defaults on loan repayment, the process allows the financial institution to place a lien, or a claim to the property, on the collateral. A lien states that the person holding the lien is the first entity to receive monies on the sale of the property containing the lien. For example, if the homeowner puts up a vacation home as collateral and defaults on loan payments, the lending institution puts a lien on that property. If the homeowner decides to sell that property, then the lending institution receives the sale proceeds up to the amount of the defaulted loan and the homeowner receives the remaining monies, if any, which is the basis of a home improvement loan secured. The lien on the collateral on the home improvement loan secured guarantees that the financial institution that granted the loan can recover the value of the loan.

Another form of home improvement loan secured includes a home equity loan. This type of home improvement loan secured determines the loan amount on the amount of equity the homeowner can claim on the home, which is directly based on the amount of mortgage principle that they have already repaid to the original lending institution. For example, if a homeowner considering home improvement loan secured wants to take out a home equity loan instead of a personal loan, they must determine how much equity they have in the home first. To do this, the homeowner then calculates how much principle they have paid back for the original mortgage and for this example, say the homeowner has already paid $50,000 of the principle. The principle is the amount of the mortgage total, not including any interest paid. This $50,000 of repaid principle is the amount of equity the homeowner has in the home, securing the home improvement loans.

Because the homeowner has already repaid $50,000 of the mortgage, they can receive a home improvement loan secured up to the $50,000. This means that if the homeowner is considering two home improvement loan secured options, one for $10,000 and one for $20,000, to cover the cost of two projects, the home improvement loan secured total is $30,000. The homeowner could receive the loans secured with the home equity and still have $20,000 left over in equity in which he could use for other secured home improvement loans. These are considered home improvement loan secured because if the homeowner defaults on the repayments, the financial institution can foreclose on the home and sell it to recoup the monies, acting as the collateral.

Advantages of a Home Improvement Loan Secured

A home improvement loan secured has many advantages over unsecured home improvement loans. For example, because an unsecured home improvement loan is based solely on a person's credit score, it can be difficult for anyone with less than perfect credit to receive a loan, let alone a loan with a good interest rate. However, if a homeowner has less than perfect credit or other blemishes on his credit record, secured home improvement loans make it easier for them to receive financing because secured loans look at more than a person's credit history and score when determining if they qualify for the loan.

Financial institutions base a home improvement loan secured or a home equity loan on how much collateral is pledged to repay the loan should the homeowner miss payments and the loan is thrown into default. Because the collateral practically guarantees the lending institution will recoup their money no matter what happens, they are more likely to grant a home improvement loan secured rather than an unsecured loan. Another benefit to receiving a secured loan, especially for those with not-so good credit histories, is that making payments on time can help improve a homeowner's credit. For every payment made on time, credit scores gain three points. For someone with a bad rating or score, this can increase their chances of recovering their creditworthiness while making the renovations needed, thus securing possible future credit.

Another big advantage in receiving a home improvement loan secured is the rate of interest the homeowner will pay when repaying the loan, especially if the homeowner puts their house up as collateral. Typically, home improvement loans secured charge up to a point or more lower than unsecured loans do. If the home itself is put up as collateral, the homeowner will take a mortgage out on the home, which is what guarantees repayment. However, this mortgage typically receives lower interest rates and offers the homeowner more latitude if they want to borrow more money. Both fixed and variable rate (ARM) loans are at a lower rate than they have been since in a long time.