Home Improvement Mortgage

A home improvement mortgage allows a family to get the cash needed to either maintain or increase the value of their primary residence. For most households, the house is the largest investment they have and it is financially prudent that this investment be protected. But beyond that, a house is more than a structure. It is the place where the family comes together, a refuge from the ills and stresses of the outside world. The house is home with all the many connotations contained in that simple word. Many people consider their homes to be a reflection of themselves -- an extension of personalities and interests. They want to be comfortable in the surroundings, to be able to function in the space, and to welcome others to share in hospitality. When costly maintenance projects need to be made or when the time comes to modernize the house with upgrades, families will want to consider the various options for financing the projects. Most often, they will apply for a home improvement mortgage to fund the repairs or projects.

There are several things to consider before beginning the application process for a home improvement mortgage. The homeowner should make a careful list of all projects that need to be completed. The list may include such behind the scene items as upgrading water pipes or the electrical wiring. Perhaps the insulation needs replacing. These kinds of projects may not be much fun because no one ever sees the plumbing or the wires or the insulation. But the structure of the house should be the main priority when considering how much to borrow with a home improvement mortgage. Once these items are listed, the homeowner can include the fun stuff: upgrading the kitchen cabinets and counters, turning a mundane bathroom into a spa retreat, adding a sunroom. After listing all potential projects, the homeowner can prioritize them. This is a very important step. Shopping for new spa accessories for the bathroom is more exciting than talking about wiring specifications with an electrician. But a house with faulty wiring is a disaster waiting to happen. Wiring repairs must take precedence over cosmetic upgrades and splurges.

Once the homeowner has a prioritized list of needs and wants, she can begin estimating the costs of the projects. The homeowner may need to discuss potential costs with a contractor to be sure that the estimates are realistic. With this information, she can review the projects list. Most likely, some items will have to be deleted to fit into her budget. The Proverbs writer says: "Every prudent man dealeth with knowledge: but a fool layeth open his folly" (Proverbs 13:16). Now that the homeowner knows approximately how much money will be needed to complete the projects, it's time to review the home improvement mortgage options. Of course, the best option would be to save the money and pay cash. However, this isn't always feasible, especially if urgent repairs need to be made to the house. In some instances, an individual may be eligible for a grant from the U.S. Department of Housing and Urban Development (HUD). This federal agency works with state and local governments and non-profit agencies to make repairs and upgrades to the homes of individuals who meet eligibility requirements. Unlike a loan, a grant does not have to be repaid. For a low-income family living in an older home, this can be a great option for improving one's property.

When neither personal savings nor a government grant is an option, a home improvement mortgage may be the answer. The homeowner may want to contact the lender that holds the primary mortgage. He may qualify for an extension of his current mortgage. With these types of loans, the lender may require the list of projects and cost estimates. In some cases, the lender may give the individual the funds upfront, but some lenders may pay the contractors directly as the work progresses. The primary lender has an interest in the upkeep of the property as it serves as collateral for the original loan. The homeowner may choose to refinance the primary mortgage with the current lender of with a different lender. If the property appraises for a higher amount than is owed, the homeowner can tap into the difference (the equity) and use these funds for his projects. For example, someone may have bought a home ten years ago for $100,000. The current mortgage is $60,000. In today's market, the house appraises for $150,000. The equity amounts to $90,000. Let's say the project estimate totals $40,000. By refinancing the entire amount instead of applying for a separate home improvement mortgage, the homeowner can have one loan in the amount of $100,000 (the current loan of $60,000 and the additional amount borrowed of $40,000). He still has $50,000 equity in his home based on the appraisal of $150,000. Because the individual is borrowing less than 80% of the value of the house, he avoids PMI (private mortgage insurance) fees.

Still another type of home improvement mortgage is a second loan or a home equity line of credit (HELOC). The lender for either of these loans will require certain documentation regarding the applicant's credit history, employment stability, and income. In either case, the property serves as collateral for the borrowed funds. However, the money may be used for purposes other than maintenance, repairs, and upgrades. Some people choose to take out a second mortgage or a HELOC to consolidate debts, purchase other big ticket items such as an automobile or boat, or to take an expensive vacation. The interest rates may be lower than other forms of financing and the interest is often tax deductible. However, it may not be financially prudent to put the house at risk for these kinds of expenditures. Home improvement loans are best used for home improvements.

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