Home Improvement Loan Secured

Qualifying for a home improvement loan secured by equity may be the easiest way to obtain the cash you need for the home improvement projects you've been dreaming of. However, your home equity isn't the only collateral banks will accept. This article explains the options you have when seeking financing for a home improvement project by securing the loan with personal assets.

Home Improvement Loan Secured by Assets or Equity

A home improvement loan secured by assets can use, for instance, an automobile. You can even get a home improvement loan secured using business assets. Whatever the collateral offered, it should be worth the value of the home improvement loan secured by that collateral. Also, remember that the collateral will be at risk should you default on the loan.

A home improvement loan secured by equity is the most common method of obtaining the cash needed for home improvements and requires a property appraisal. Lenders offer lists of approved real estate appraisers; choose from their list or select your own. You can even have the property appraised by two individuals if you feel it's necessary during the course of the home improvement loan secured by equity.

The Cost of the Loan

A home improvement loan secured by equity or home improvement loan secured by assets costs less because the bank assumes no risk and will be repaid even if you default on the loan. This means the home improvement loan secured this way is easier to obtain and the interest rate will be lower.Financial advisers recommend a fixed rate home improvement loan secured so that payments remain stable throughout the life of the loan. Going with a variable rate loan is a gamble that depends a great deal upon the economy and your own credit history.

How to Qualify for a Home Improvement Loan Secured

How to Qualify for a Home Improvement Loan Secured

Since the home improvement loan secured by assets or the home improvement loan secured by equity in your house, overall credit doesn't need to be perfect. As long as you can provide your lender with sufficient collateral, the home improvement loan secured by this collateral may be approved even with a poor credit score, but this varies by lenders.

Once the property has been appraised, you will move forward depending upon the appraisal results. If the property or assets appraise for enough to cover the full amount of the home improvement loan secured by collateral, then the lender will begin processing the application. If not, you may be asked to supply additional collateral or offer a cash down payment.

Things That Can Go Wrong

As the lender processes the paperwork for the home improvement loan secured with collateral, snags in acquiring the home improvement loan secured by equity or assets can happen.

1. Length of time on your current job.

2. Your credit score doesn't meet your lender's guidelines.

3. Debt to income ratio is too high.

A Word About Debt to Income Ratio

One of the criteria in deciding whether to approve the home improvement loan secured by assets or collateral is debt versus income. Lenders want to make certain that you can repay the loan. Even though the loan is secured by collateral, this is still a major factor to consider and so the question you might want to ask is if you can make your payments on time each month. Home improvement loans secured this way are typically extended over a longer period than say, a new car loan. This means that your lender may look at your long-term ability to repay such as:

• Your current job stability

• Health issues that might cause you to default in the future

• Your current length of living in a community.

If your debt-to-income ratio is too high, there are several ways to handle this obstacle. The most direct method is simply to pay your debt down. This could mean paying off one or more credit cards or even your automobile.

How Poor Credit Scores Affect your Home Improvement Loans Secured

Let's say that your property has been appraised and you do have sufficient equity to cover the amount of the loan you are requesting. Because of a low credit score though, your lender isn't offering you a very good interest rate. Here is a very good example:

Sara Jones has been approved for a $12,000 home improvement loan secured by the equity in her home. The loan's repayment terms are seven years or 84 months. The current interest rate for this type of loan is 7.5 percent with excellent credit. Because of her low credit score, Sara's bank offers her the loan at 10 percent. The question is raised if she should take the deal or not.

The difference in the interest between 7.5% interest and 10% for this amount is $1,260. The monthly payment will be $15 per month more with the higher interest rate. Sara might choose to hold off on the home improvement loan secured by her equity and spend six months or so working on her credit score, so that she qualifies for a better interest rate.

In some cases, it is preferable to fix your credit first before moving forward with a new home or home improvement loan secured or not. This can save you money in the long run and be worth the wait.

Increasing the Value of Your Home

Many times homeowners search for a home improvement loan secured by their equity because they've outgrown their home and need more space or they want to renovate. After living in your house for ten years, it may need new carpeting and paint or a kitchen makeover. Remember that all renovations and add-ons will add to the value of your home.

Always hire reputable contractors to do the work and when the home improvement project is complete, the value should be higher than the appraisal. Your home is your biggest investment. Money spent to improve its value is money well spent. A home improvement loan secured by equity or assets can be a sound investment in your future.