How to Get a Home Improvement Loan Roger Odoardi If only home renovations were as easy as they look on those HGTV shows. Then your biggest concern would be whether you like the designs the renovation experts chose for you. But everyone isn’t so lucky to be selected for one of these shows, so understanding how to get a home improvement loan is the next best path towards achieving your ideal living space. Here are the steps to take before you explore your home renovation loan options, as well as a summary of the types of loans available. Estimate Your Project Cost Before even applying for a loan, gathering estimates from contractors will help you establish a baseline of how much your home improvement project will cost, which will give you an idea of the amount you’ll need to borrow. It’s important to get these estimates from professionals, since home renovations and fixer upper projects can often run into unforeseen roadblocks throughout the construction process. For example, you may not know that your bathroom has mold in the walls and you’ll definitely need that to be taken care of during the improvements. But this could have a hefty price tag that will need to be considered in your final loan amount. Receiving estimates should also help you consider if you can pay for some of the improvements in cash. This could help lower the loan amount you need, which will save you money in the long run. Make sure to request estimates from several contractors so you can shop around for the best deal for your home improvements. Evaluate Your Equity The majority of home improvement loans depend on the homeowner’s equity, which is the portion of the home that is already paid for. The equity in your home then becomes the collateral for the loan. But even if you have a good amount of equity, you’ll need to demonstrate that you are financially capable of paying your debts as well as this additional home renovation loan. Your ability to pay it back on time and in full will then set the final terms of your loan. Understand Your Credit History Just as with applying for a Connecticut, Maine, New Hampshire, and Massachusetts mortgage, your credit score can impact the terms of the loans your fixer upper project will be eligible for. And, as with any type of loan, the higher your credit score, the better terms you’ll likely receive. If you’re worried about a low credit score, a home improvement loan won’t necessarily be out of the question. There are government loans, private lenders and co-signing opportunities that you can still pursue. For more details, check out our blog: How to Get a Home Improvement Loan with Bad Credit. Get an Appraisal Since many home improvement loans are based on the amount of equity you have, the lender will need to know the overall value of your home. Not all lenders will require this, but you should be prepared, just in case. Your Home Improvement Loan Options Once all of your ducks are in a row in terms of documentation and expectations, you can begin to research the different types of loan options that may be best for you. Home Equity Loans With a home equity loan, a borrower uses the equity of their home as collateral. These loan types usually require good credit, and they can be a bit pricier than others since there are additional fees like appraisal, originator, title, closing and others. The loan amount will be determined by the value of your property and the value of your property will need to be determined by a licensed appraiser. Home Equity Line of Credit Think of a home equity line of credit like a credit card. You are able to withdraw money as you need it during a time limit that’s set by the lender. As you pay some of the balance off, your credit will revolve and you can withdraw it again. Home equity lines of credit can have fluctuating rates that can end up higher than the rate you’d receive on a fixed home equity loan, making them much riskier. However, this open credit line gives you more flexibility than a fixed-rate home equity loan. FHA 203(k) Loans This loan type is backed by the federal government and allows borrowers to purchase a property with the cost of repairs and upgrades included. The intention behind this loan was to help revitalize struggling neighborhoods, which has brought the required down payment as low as 3.5% in most instances. Home Construction Loan Lenders are often cautious when it comes to construction loans. There is a lot of trust that needs to be placed in the builder, and if things go wrong, the lender could soon realize that they’ve made a bad investment. Because of this, there are very strict qualifying requirements for this type of loan, including: Finding a qualified builder that’s approved by the lender Providing the lender with a comprehensive list of project details Like the floor plans, types of materials being used, etc. Getting an estimated home value from an appraiser Paying a large down payment – usually between 20-25% On top of these requirements, you’ll need to prove you have good credit and are financially healthy. No matter your situation, you have a variety of options for financing your home improvement project. The team at Blue Water Mortgage can help you determine which you may be eligible for, and can guide you in the right direction throughout the loan process. Contact us today to get started! Roger Odoardi Roger is an owner and licensed Loan Officer at the Blue Water Mortgage office in Hampton, NH. Roger graduated from the University of New Hampshire Whittemore School of Business and has been in the mortgage industry for over 20 years. Roger has originated over 2500 residential loans and is licensed in New Hampshire, Massachusetts, Maine, Connecticut and Florida.