All you need to know before getting a home improvement loan
Your home is your primary investment that you need to protect. As any other investment, should be maintained properly so it doesn’t lose its value. From minor repairs to more important upgrades, you might find yourself in need of financing to face a remodel. Let us walk you through the alternatives of home improvement loans you can find in the market.
Can you afford to pay cash?
Like with any other purchase, the best deal comes with a cash transaction but this is only accurate if you already have all the money from savings. If you need to borrow, beware of the hidden costs of interest rate and equity loss. Credit cards usually offers fast and easy access to money at very high interest -even cancelling the debt at the end of the month-. The smart move for getting the cash to face a home improvement is directly apply for a loan from your bank, and work with them all the alternatives. The lender will define the terms of the loan and you must agree to them before signing the note. Make sure you understand to the letter all the cost involved and that you will be absolutely able to afford the monthly payments, before starting the works. Even if you are ok with the bank that holds your mortgage, it won’t hurt to explore other options from different lenders. Most contractors work with a couple of banks and offer financing through them, which makes all the process and paperwork a lot more easy for you. In this case, the same rule applies: Read and understand every word of any contract or other paper before you sign it.
Equity loans vs personal home improvement loans
If you have equity in your home, you have access to a lot of funds for a low APR, using your home as collateral. This meaning you don’t mind putting your home on the line to get a remodel. But for most people, since 2008 crisis, equity is nonexistent and yet truly need to make some costly upgrades to get back in positive equity territory. In those cases, a personal loan backed by your personal income and credit history is more attainable. With this system, rates are usually higher, but you don’t risk your home equity as collateral.
The things you MUST check before signing the note
Different lenders structure their notes in different ways, to highlights their pros and hide deep inside confusing wording all their disadvantages. If you don’t feel certain about any of the following points, ask directly to your bank/lender salesman to clear things out.
- What are the nominal and effective APR.
- What are the fees associated with the loan.
- If you are opting for an HELOC, what will be your annual fee and conditions.
- What are the borrowing limits.
- If you are closing the deal through a contractor, always ask the details of the lender and check with them the terms offered to you.
- Check both the reputation by customers of the lender and the contractor, before settle the relationship. Google everything!
Who to trust
Lenders trust you with their money, contractors trust that will get paid and you trust everyone that you’ll get your wanted home improvement. The whole pack should be based on the trust of the parties, so don’t settle in any case your gut says otherwise. Make absolutely sure you will be able to face the installments for all the period of the loan, if not, better choose a smaller project you can afford comfortably. The key is working together with the lender and the contractor to fit within your limits.
A cosmetic remodel or a needed home improvement are projects that can raise the quality of life of your whole family, but shouldn’t be a burden that steal your sleep. Pay attention to the details and be careful on where you put your trust and everything will be just fine. If you need more assistance, give us a call or leave it in the comments and we will be very happy to help you on financing your plans.