Bad Credit Home Improvement Loans

Most applicants will find that bad credit home improvement loans are not as easy to obtain as some other types of bad credit financing. A poor credit history and low score may not keep someone from getting the financing to buy a vehicle, but these are significant factors in the housing finance industry. When someone fails to make car payments, the car can be repossessed. It's not that simple to foreclose on a house. The process is lengthy and costly, and can be particularly difficult for a lender who does not hold the first mortgage lien on the home. This is why lenders review applications for home improvement financing so carefully. Few financing institutions are in the business of deliberately offering bad credit home improvement loans to homeowners. From the consumer's standpoint, this can be extremely frustrating or an opportunity to take the necessary steps to improve one's financial reputation.

There are a lot of fun television shows that highlight various home and landscaping projects. Many viewers get the decorating and gardening but after seeing the before and after videos of what other people have accomplished in their homes. It's fun to dream about freshly painted walls, upgraded kitchen cabinets and countertops, airy sunrooms, and spacious patios. These kinds of features and upgrades often increase a house's market value -- another tempting reason to hop onto the improvements bandwagon. But a person who only qualifies for bad credit home improvement loans may be better off, from a financial perspective, dreaming the dream and postponing the projects. Besides, the reality isn't always as satisfying as the dream. The wisest man who ever lived, King Solomon, tried finding fulfillment in projects. He writes: "I made me great works; I builded me houses; I planted me vineyards: I made me gardens and orchards, and I planted trees in them of all kind of fruits: I made me pools of water, to water therewith the wood that bringeth forth trees . . . And whatsoever mine eyes desired I kept not from them, I withheld not my heart from any joy; for my heart rejoiced in all my labour: and this was my portion of all my labour. Then I looked on all the works that my hands had wrought, and on the labour that I had laboured to do: and, behold, all was vanity and vexation of spirit, and there was no profit under the sun." (Ecclesiastes 2:4-6; 10-11).

Of course, sometimes the financing isn't needed for upgrades and additions, but for repairs that are needed to maintain a house's market value. Someone in financial difficulty usually concentrates on providing food and other necessities for the family. Housing repairs are low on the priority list, and rightly so, but they will eventually need attention. Applying for bad credit home improvement loans, however, is only one possible option. Depending on other economic factors, such as the value of the house, the amount of equity, the household income, and current interest rates, it might make sense to refinance the first mortgage. Financial experts often advise that a monthly mortgage should not exceed twenty-five percent to thirty-three percent of the monthly income. If the homeowner qualifies for refinancing, and the new mortgage payment is within the suggested guidelines, this may be the best option for obtaining funds for repairs. However, this only works if there is enough equity in the house to keep the total amount borrowed at less than eighty percent of the appraisal value of the house. For example, if a couple has a $60,000 mortgage on a house that is appraised at $100,000, they have equity of $40,000. By refinancing, they can get a new mortgage of $80,000. After paying off the old mortgage, the couple now has $20,000 for household projects and repairs. This can be a much better financial decision than applying for bad credit home improvement loans. However, the couple needs to take into consideration such factors as the closing costs, the interest rate, and their ability to afford the new monthly payments.

Another option is to take out a second mortgage or a home equity line of credit (HELOC). The interest rates for these kinds of financing are usually higher than those for first mortgages. Here again, the couple needs to consider the closing costs and the monthly payments. People often take out second mortgages and HELOCs for purposes other than the house, such as for debt consolidation, vacations, or to take advantage of investment opportunities. This is because the payments made on a second mortgage or to a HELOC are usually tax deductible. However, many financial experts advise against this practice. If the payments cannot be made, the family could be in danger of losing their home. But it's certainly better to obtain a HELOC than apply for bad credit home improvement loans. Still another option for some individuals is to apply for a personal, or unsecured loan. This means that the loan is given on the basis of the person's financial reputation and is not linked to an asset. If the amount that is needed for the project isn't astronomical, a person with a good track record of paying bills on time and that has a steady income may qualify for this type of loan without any difficulty. The interest rate will probably be higher than that for a first mortgage, but the application process will be faster and there will be no closing costs.

These options aren't available to everybody. A person with a poor financial history who must make repairs to his home has one other option before applying for bad credit home improvement loans. Federal and state programs provide grants to qualified homeowners that can be used to rehabilitate their properties. The U.S. Housing of Urban Development (HUD) is the first place to look for grants of this type. The department often works in conjunction with state and local agencies to assist homeowners through the application process. Unlike loans, a grant does not need to be repaid. This can be such a boon for a family who needs a hand-up out of a financial difficulty. Only as a last resort should homeowners consider applying for bad credit financing. Before beginning the process, they must understand that most lenders require an estimate from a contractor of the repairs that are needed to the house. Only essential improvement will be approved and the homeowner has the responsibility of proving that the listed repairs are essential. The interest rate will be very high compared to other options and the house will be listed as collateral. If the homeowner defaults, she may lose her house. Homeowners should carefully consider their dreams and budgets when applying for home improvement loans. Only for essential repairs, and after all other avenues have been exhausted, should the homeowner apply for bad credit home improvement loans.

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