NEW YORK, NY / ACCESSWIRE / September 13, 2024 / Most homeowners are always on the lookout for ways to improve their home. Whether it's a new coat of paint or a complete kitchen renovation, there's always something that homeowners can do to make a house feel more like home. But when it comes to making improvements, money can often be an issue. This is where a home improvement loan can come in handy.
What is a home improvement loan?
A home improvement loan is a type of loan used specifically for improving a home. Borrowers can use home improvement loans for things like repairs, renovations, or even an addition.
Home improvement loans are either secured or unsecured. Secured loans have collateral backing them up, which means that if a borrower defaults on the loan and has used the house as collateral, the lender has the legal right to take the home as repayment for the loan. An unsecured loan isn't as risky for the borrower, but it can often come with a higher interest rate, because it's riskier for the lender.
Using home improvement loans for DIY projects
Using a home improvement loan for a DIY renovation depends on the type of project and loan. One lender may be willing to finance a project if it adds value to a house, but another may not be so willing to take on the risk associated with financing a DIY project.
Painting walls or installing new light fixtures can be relatively inexpensive and may not require getting a loan. But, projects like renovating a kitchen, are often costlier and require significant time and effort. So, a major home improvement project may warrant the consideration of a home improvement loan.
Some types of home improvement loans can have a term that lasts up to as many as 30 years, depending on the lender and the specific purpose of the loan. But keep in mind, a personal loan used for home improvements will have a shorter repayment period, typically 2-5 years. See below for more details about some different types of home improvement loans.
Types of loans for home improvements
Home equity loan
A home equity loan is a loan that requires the borrower to use the equity in their home as collateral for the loan. The loan amount is typically based on the amount of the homeowner's equity in the house, which means its value minus the balance still owed on the mortgage. Borrowers can use home equity loans for various purposes, including home improvements. A borrower receives a lump sum from the lender and is obligated to pay the loan back using installment payments for the duration of the term of the loan.
Home Equity Line of Credit (HELOC)
A HELOC is a type of secured loan that, like a home equity loan is backed by the equity a homeowner has in their home. One of the benefits of a HELOC is that it allows homeowners to borrow money as needed during a set period called the draw period. Repayment on a HELOC is made like a revolving line of credit similar to a credit card. Unlike a home equity loan, HELOCs usually have variable interest rates that can change, and you start paying back the money after the draw period ends.
Personal loan
A personal loan can be an unsecured or secured loan that can be used for many purposes, including home improvements. Banks, credit unions, or online lenders typically issue personal loans with a loan amount and interest rate that is determined by the lender and takes into consideration the applicant's credit history and financial condition, i.e., cash flow.
The interest rate and the monthly payment amount for this type of installment loan is fixed, making it a good option for borrowers who want predictability in their repayment schedule.
Bottom line
Homeowners can use a home improvement loan for a DIY project, but there are choices to consider. A home equity loan or HELOC may be better for more extensive projects because even though the loan is secured by the home as collateral, it may have a lower interest rate and offer a longer term. However, a personal loan could be better suited for minor renovations because they can be arranged more quickly, and the borrower wouldn't necessarily need to put their home at risk by pledging it as collateral for the loan.
Ultimately, the best loan to choose depends on a borrower's intentions and personal financial picture. Still, hopefully, this article provides a foundation for making a more educated decision.
SPONSORED CONTENT
About OneMain Financial
OneMain Financial is the leader in offering nonprime customers responsible access to credit and is dedicated to improving the financial well-being of hardworking Americans.
CONTACT:
Sonakshi Murze
Manager
[email protected]
SOURCE: OneMain Financial