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Home Improvement Loans versus Equity Loans

Mar 28, 2008
When a home needs some maintenance work carried out, an ideal way to ensure this can be achieved is by arranging a remodeling program, providing you can raise the finance; one option is to apply for a home improvement loan to finance the project. Very few people want to attempt many of these home improvements themselves so tradesmen such as electricians, plumbers and carpenters will need to be employed.

Home improvement loans usually have the choice of a secured loan on the property itself or an unsecured loan where the home does not need to be used as equity. Fortunately loans that do not require the home itself as equity are even available to brand new homeowners. Fortunately for the homeowner, a non-equity based financing arrangement is available with a fifteen year repayment term if required.

The primary stipulation when applying for a loan without equity is the combined income of both owners but the amount of the loan must not be higher than the amount allowed by the county law where the home is situated. The eligibility of the borrower, the property type and the improvements planned are all considered because this type of loan may only have minimal documentation and is relatively easy to process.

A secured home improvement loan allows you to access some of the equity in your home, so that you can take out a loan against your property. The upside to this type of secured loan is it's available at more favorable rates of interest but is not arranged as a second mortgage on the property.

Obviously the amount you are able to borrow using a secured loan will depend on the value of your home. The lenders need to be assured that there is in fact equity in your property and that any loans already outstanding will not interfere with any new arrangement made by them if they agree to a loan.

After this has taken place, the lenders will put a package forward which may not necessarily be for the full amount the homeowner wanted. Usually, finance companies will lend you a percentage of the assessed value of your house but some lenders can lend as high as 125 percent of your home's equity.

Any loan secured on a property has a risk attached and that is especially true when the loan is large as payments can become difficult to make at which point the creditors can move in and take your home away. It is never a good idea to borrow more than you can afford to repay, no matter how noble the cause so if your home improvement loan will cause financial hardship, restrict it to cover just essential maintenance.
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