Financing Home Improvements

Financing home improvements can be accomplished a number of ways each having its own advantages and disadvantages. Home improvement is a gigantic industry evidence by the presence of huge home improvement stores peppered all over the country in suburban locations and a few urban sites as well. Financing home improvements means first there are a few things to understand about smart borrowing practices. If a house owner understands the basics, financial rewards can come his/her way. A good place to start would be what kinds of house improvements should be financed.

Real estate experts are quick to point out that kitchens and bathrooms are great remodeling sites for financing home improvements. A remodeled kitchen can bring a return of eight to ninety percent of the cost to remodel and a bathroom can recoup almost seventy five to eighty percent of the remodeling costs when the house is resold. Putting new windows, a new fireplace or replacing old appliances with energy saving ones can perhaps recoup as much as fifty percent of their replacement cost. And that in ground swimming pool that dreams are made of? Don't even dream about it anymore. Many people don't even consider houses that have them and agents are quick to discourage homeowners from putting them in. It is reality that perhaps not one dollar can be recouped from the expense of a pool being installed.

So where does a person start to look for borrowed money for that dream kitchen? If there is enough equity in the house already, a local bank is a good start. A bank will be offering a home equity loan based on a percentage of the equity built up over the years. It will have a fairly decent interest rate and in most cases, be the interest paid on the loan will be tax deductible next April 15th. Oops, was it mentioned that the borrower will have to have a credit score of at least 640 and a debt to income ratio that is pretty low? Try a credit union next if the bank thing doesn't work and they are often times a little more interested in the whole person and not just a credit score, but the interest rate might be slightly higher. But financing home improvements may not happen at a credit union either because if the credit score is too low or the debt to income ratios is too high, well it's not hard to see the end of that story.

The next stop might be at a local loan company for financing home improvements and then there is the question of whether or not the lending agreement will be a secured or unsecured loan. If the house owner has equity in the property, the lending company might be inclined to give a loan for the entire amount of the equity, unlike the bank which only will give a percentage. Since the loan company is backed by high risk investors rather than depositors, much more leeway is given for loaning more money with less security for the lender. Of course, this means that the interest rate will be higher than the bank or the credit union offers for a home equity loans, but even those with a lesser credit score will be eligible for loan company lending agreements. On the other hand, if there is no equity or very little, the loan could be an unsecured loan and can the reader hear the interest rates climbing? In most cases an unsecured loan is given merely on the basis of a promissory signature on the lending agreement contract.

The higher the interest rate goes, the less impact a remodel or home improvement will have at resale because of the higher price the owner has paid for the loan money. If a bathroom redecoration cost ten thousand dollars and realtors claim eighty percent can be recouped when the house sells based on paying cash for the makeover, what is the percentage of the recoup if a ten thousand dollar loan costs the owner four thousand in interest charges? Eighty percent of ten thousand is eight thousand minus the four thousand in interest for the loan company lending agreement and now the percentage drops to forty percent. Ouch! With a bank home equity loan, financing home improvements might have kept the recoup percentage above sixty percent or more. Everything depends on credit scores and debt to income ratios.

Financing home improvements may come from the federal government. Loans from the Department of Housing and Urban Development are offered for four different housing sectors. Title 1 loan money offers up the $25,000 for livability improvements such as new roofs or additions. Section 203(k) loans help to rehab single or up to four family dwellings. Veterans can get help with their home improvement issues and a Rural Housing Repair and Rehabilitation loan can help those living in the country. "This is my commandment, that ye love one another as I have loved you." (John 15:12)

It's good to know that financing home improvements isn't rocket science. Perhaps that dream of a new kitchen or new bathroom isn't so far off after all. But what drives us to be unhappy with what we already have? Trips to the property improvement store where glittering new lights and lots of chrome and shiny bathtubs with whirlpools can do it to almost anybody. So what's the motive behind always wanting the newest, the shiniest, and the coolest? If anything, the troubles the country is having right now are reminding many that simpler really is better. The bumper sticker read, "He who dies with the most toys is dead."

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