Many homeowners struggle to keep up with the “to do list” of projects that need to get done around the house. Bigger projects get put on hold because the homeowner does not have the cash to pay for them and they are too big to be DIY projects. Keeping up with home maintenance becomes more difficult and more expensive, and things soon become dated and worn.

If this sounds like you, you may want to explore a home improvement loan. With today’s low rates, it just may be the best way to get those important projects behind you.

What Are Home Improvement Loans?

A home improvement loan is a kind of loan designed for homeowners for the purpose of financing home improvement projects. The type of project can range from remodeling outdated rooms, making needed repairs, building an addition onto their home, upgrading appliances or any other similar home improvement project.

Repayment terms for a home improvement loan are varied. The loan can be structured as a mortgage loan, a home equity line of credit (HELOC), or an unsecured loan. Which kind of loan is best for you depends on an analysis of your credit standing and the type of financing that may be best suited for your particular project.

If You Have Equity in Your Home

If your home has value in excess of the existing mortgage, you have equity in your home. Having equity in your home gives you more flexibility in the type of loan you can get. You may be eligible for a cash-out refinancing of your first mortgage, a second mortgage, a home equity loan, or a HELOC. Any one of those options would work well for a large home improvement project. If your project is small, you may be better off simply getting an unsecured loan. You will pay more in interest for an unsecured loan, but you will pay less up front.

If You Have Little to No Equity in Your Home

With little equity in your home, your financing options are different. For small projects, an unsecured personal loan is likely your best option. Although the interest on such a loan will be charged at a higher rate than if secured by the property, the unsecured loan will not involve the higher closing costs associated with mortgage loans.

Unsecured personal loans are a good alternative to a home equity loan, but you will need to have a good credit score to get the lowest rates. Even then, interest rates are higher with personal loans and the repayment period is shorter, usually five to seven years. This means your monthly payments could well be higher than they would be with other loan options. Still, if you have good credit, you have little equity in your home, and you can handle a shorter repayment period, a personal loan may make the most sense for you.

If you need financing for a larger project, you may want to consult your lender about refinancing into a renovation loan or “as repaired” value cash-out refinance to take advantage of the lower rates.

Best Home Improvement Projects Financed by Home Improvement Loans

Home improvement projects that are often funded with a home improvement loan are described below.

Build an Addition and Increase the Home’s Value

Your family has outgrown your house and you’re wondering if you should move or build an addition. Building an addition will almost always add value to your home, and it saves you the expense and stress associated with moving. An experienced lender can discuss the financing and all related costs with you to help you make that decision.

When a project such as an addition or major repairs will increase your home’s value, talk to your lender about financing options that will keep the rate and costs as low as possible. If you have equity in the home already, your lender will want you to pledge that as collateral for the loan.

A cash-out refinance is popular when a homeowner is improving the home in ways that will increase its value. However, if you have no equity, the lender will require an appraisal based on the itemized repair and remodel plans to estimate the “after-improved value” of the home.

Remodel One or More Rooms or Improve Outdoor Living Areas

Depending on the size and extent of the remodeling, the cost can be significant. If it adds value to the home, as well-designed and well-built remodeling and landscaping projects often will, your financing options will be similar to those available in building an addition. If the project is mostly cosmetic and relatively inexpensive, your best choice may be to go with an unsecured loan.

Install Green Energy Appliances

Ask your lender about green energy loans that provide special financing for replacing and upgrading your home appliances with green energy appliances. Green energy loans are available with minimal restrictions with loan amounts up to $40,000.

Clean Water Damage or Mold

If your home needs mold remediation and repairs from flooding or water damage, you may be eligible for a grant to pay for all or part of the work. When buying a home with mold damage, you may qualify for special mold remediation loan programs. Your lender can help you with the details about available financing for those purposes.

Get Started with Fairfax Mortgage Investments

Give the lending experts at Fairfax Mortgage Investment a call to discuss your home improvement dreams and find out what loan programs are available to you.