Personal Loans for Home Improvement
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Can You Use a Personal Loan for Home Improvement?
What Can a Home Improvement Personal Loan Be Used for?
Replacing or repairing flooring. Installing energy efficient windows. Converting attic space. Adding living space in a basement. Replacing appliances. Replacing or upgrading HVAC systems. Repairing or replacing roofs. Adding a second bathroom. Building a new deck. Renovating a garage.
Pros and Cons of Personal Loans for Home Improvement
Pros of Home Improvement Loans
Quick processing time: Borrowers are often able to receive loan proceeds shortly after approval. No fees, in some cases: Many personal loan lenders don’t charge origination fees, prepayment penalties, or other related charges. Fixed monthly payments: Personal loans are typically fixed-rate loans, so each monthly payment is the same for the entirety of the loan’s term. No collateral needed: If your loan is an unsecured personal loan, you will not have to put up collateral you may risk losing if you don’t repay the loan.
Cons of Home Improvement Loans
Comparatively small loan amounts: Maximum loan amounts for personal loans are often much smaller than other loans offer. You may want to consider borrowing a little extra in case your home improvement project costs more than you estimated. Potentially high interest rates: Depending on your credit score and credit history, it’s possible to receive an interest rate that is even higher than what many credit cards charge. Fixed rate: While having a fixed rate is often considered a benefit, it can be a drawback compared to a variable-rate loan. If the benchmark interest rate drops, you would not be able to take advantage of a potentially lower interest rate without refinancing. Lack of tax benefits: Personal loans used for home improvement are not eligible for the potential tax deduction that a home equity loan or line of credit might be.
Typical Repayment Terms for a Home Improvement Loan
How Much Can You Borrow?
Monthly income. Debt-to-income ratio. Credit score. Credit history. Current home value. Mortgage principal. Loan purpose.
Other Options for Paying for Home Improvement Projects
Low- or no-interest credit card: Some people may opt to use a credit card that offers a low — or even 0% — introductory APR. Typically, a strong credit score and credit history are needed to qualify for this promotional offer, which may last between18 and 24 months. Home equity loan: If you have equity in your home, you may be able to borrow against a percentage of it, typically up to 85% of any equity you’ve accumulated. For example, if you have $100,000 in equity, you could potentially borrow up to $85,000. The loan proceeds are distributed in one lump sum. Loan repayment terms vary with each lender, but it’s possible to get a repayment term of up to 30 years. Home equity line of credit (HELOC): A revolving line of credit, a HELOC is another type of loan that allows you to borrow against your home equity. The main difference between a HELOC and a home equity loan is how the loan proceeds are distributed. Instead of the borrower receiving a lump sum, the funds from a HELOC can be borrowed as they are needed and repaid — up to the credit limit — during the draw period, which can last up to about 10 years. When the draw period ends, the repayment period begins, which can be as many as 30 years. Loan terms will, of course, vary by lender. FHA Title 1 Loan: Insured by the Federal Housing Administration, an FHA loan can be issued by any approved bank or lender. The only catch with an FHA Title 1 loan is that the upgrade must be permanent and it can’t be for a luxury item. This means it won’t cover the purchase and installation of a pool or spa, but it will help with things like adding a second bathroom or repairing your home’s electrical system.
Applying for a Fixed Rate Personal Loan for Home Improvement
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