Home Improvement Loans - Government & Private
Government home loans on offer
A home improvement loan is sometimes the only way you can raise the money for those much-needed repairs or improvements to the house. However, taking out a loan means shouldering the burden of debt, and you need to have a plan in place to deal with that debt. Don't take out a loan unless you're sure you'll be able to make the repayments on it.
Government home improvement loans
If you can get federal government help with your home improvement loan, this can save you money. The US Department of Housing and Urban Development (HUD) offers a home improvement loans program, which is administered by the Federal Housing Administration (FHA).
The FHA doesn't loan you money directly, but it insures loans made by private lenders to borrowers. This is known as Title I insurance. The annual premium for this insurance is $1 for every $100 advanced. You may have to pay this separately, or it may be covered by a slightly higher interest rate on the loan. The application must be made to an approved lender. See the HUD website (www.hud.gov) for more information, including details on approved lenders in your area.
If you are a veteran, this will help you to get better terms on a loan. The US Department of Veterans Affairs runs the VA home loan program, which allows you to get loans at a lower interest rate than most other loans. Each state has its own office for administrating veteran benefits and VA loans, except for California , which has three, and Texas , Pennsylvania and New York , which have two each. The offices don't lend directly to you, but they run the program for lenders and borrowers. Your lender should have VA Automatic Status granted by the Department of Veterans Affairs. You will then need to prove to your lender that you are eligible for a VA loan. This usually means getting a certificate of eligibility from your state office. See www.vba.va.gov and www.homeloans.va.gov for more information.
Private home improvement loans
If you can't get federal help with your home improvement loan, you will have to take out a private loan. It is possible to borrow against the value of your house to raise money for home improvements, but you should think carefully before you do this and always shop around for the best rates. If you're borrowing against your house - in other words, taking out a second mortgage - the amount you can borrow is based on the equity in your home. To calculate the equity, find out the current market value on your house, then subtract the total sum you still owe on it. However, equity isn't the same as real money in the bank and to calculate the total repayment you'll need to factor in interest rates and payments as well. Once you've done this you still need to find a way of repaying the money you've borrowed.
There is a strong argument for borrowing to pay for home improvements, because home improvements can increase the market value of your house. In other words, you may be able to recoup the costs of the loan when you sell your property. However, this is by no means guaranteed. It's better to ensure that you only borrow what you can afford to repay without selling your home.