Home improvement is the process of renovating, modifying, or making additions to a home. Home improvement is a costly affair that necessitates some type of financing. Any loan offered to homeowners in which the home is used as security is called a home improvement loan.
Reasons for Home Improvement?
The reasons behind home improvement are varied. While some might desire home improvement in anticipation of future needs, such as a new baby, others might desire renovation simply to modernize the house. Statistics reveal that most homeowners consider home improvements for one of the following reasons:
To update some part or parts of the home.
To replace fixtures or appliances that might have been outdated.
To sell a home. This is, once again, a serious consideration, as an up-to-date home always fetches a better price when compared to the same home with outdated features.
To accommodate a new family member
Home improvements are often performed to help raise the asking price of a house about to be sold. Such home improvement projects often include:
There are various types of home improvement, and these depend on the scope of a home improvement plan. A small home improvement plan usually does not require financing, however, larger projects necessitate additional financing, or a home improvement loan. The following are the types of home improvement loans or financing options available:
A second mortgage is a loan against the equity in the home. A second mortgage is basically an additional mortgage, and financial institutions usually lend up to 80 percent of the appraised value of a home minus the balance on the original mortgage. Fees that are normally associated with a mortgage, such as closing costs, title insurance and processing fees, must be incurred additionally.
Refinancing refers to paying off the old loans and taking out a new mortgage on a home. A refinance generally requires equity in a home, a solid credit rating, and an overall steady income. Moreover, when refinancing is sought, an individual will have to incur all the closing costs that go along with getting a new mortgage. These additional fees are the main reason why refinancing is not advised unless an extensive home improvement project is planned.
A Home Equity Line of Credit (HELOC) acts like a second mortgage and lets the borrower borrow up to about 80 percent of the appraised value of the home. However, the current mortgage balance is subtracted from the appraised value. The best way to approach HELOC is to avoid withdrawals until the need to pay contractors and suppliers arises.
Unsecured loans. The cost of obtaining unsecured loans is comparatively lower than the other types of home improvement loans. However, interest rates charged on unsecured loans are often higher, and borrowers are not able to get a tax deduction for interest paid on unsecured loans. Unsecured loans are advised for small home improvement projects with expenditures not surpassing about $10,000.
Can Home Improvement Help Increase Home Equity?
Home improvement can help increase the equity of a home. This is because home improvement not only improves the quality or size of a house, but may also increase its value, all of which adds up to an increase in equity. It should be noted that some home improvement projects bring better results in increasing equity. For example, remodeling kitchens or bathrooms usually brings greater returns than modifying or adding leisure amenities. However, some home improvement efforts may also decrease home value so please be sure to get professional consultation before you start on any home improvement projects.