Home renovation projects can increase your property’s value and functionality, but they don’t usually come cheap. If you don’t have the funds to complete a much-needed home remodel, it doesn’t mean you have to put it off. You can finance the project by taking out a personal loan. Below are a few essential things to know.
What Is a Personal Home Improvement Loan?
A home improvement loan is a type of personal loan for financing renovations, alterations, and additions to your living space. Also, you can use it for emergency repairs.
Lenders often advertise large loan amounts to entice potential borrowers, but the amount you receive in funding will depend primarily on two criteria—your credit score and income.
Credit Score
Your credit score reflects your creditworthiness and the financial risk you pose to the lender—although there are other factors taken into account as well, the better your payment history, the higher your score. A credit score of at least 620 qualifies you for higher loan limits and lower interest rates.
Income
Another factor to consider is your income. However, a higher income doesn’t automatically mean a higher loan amount—the lender will evaluate your debt and recurring expenses to estimate the monthly payment you can manage based on your earnings. They want to make sure you’re able to repay your loan.
Why a Personal Loan Is Better
Although many financing options are available, a personal home renovation loan offers benefits other alternatives can’t match. Here’s why you should consider one when you need to get a loan to remodel your home.
- No Collateral: Generally, a personal loan is unsecured. That means there is no risk of losing any of your assets if you default on the loan. You also don’t need to have equity in your home to borrow.
- Quick Funding: Like other personal loans, home improvement loan payouts are available in as little as one to three days after approval. With some lenders, like Power Finance Texas, the application is done online and often takes only a few minutes.
- Low or No Fees: Fees on a personal loan are relatively low, and some lenders won’t require any. There are also no closing costs and related charges, such as appraisal fees and insurance premiums, normally associated with other financing options.
- Fixed Payments: With a home improvement loan, monthly repayments are set for its term. Knowing how much you’ll pay every month lets you manage your finances better.
- More Flexible: A personal loan gives you more leeway in how you use it than other loan options. Moreover, you can still get a low interest rate with a good credit score, stable income, and low debt-to-income ratio. However, the maximum loan amount is typically lower than secured loans.
Where to Use a Home Renovation Loan
Since the purpose of a home improvement loan is flexible, you can use it for the following projects (and many more):
- Replacing a leaky roof, windows, or garage doors
- Purchasing a new HVAC system
- Fixing or changing the flooring
- Installing a carpet
- Converting an attic or basement into a home office
- Remodeling your bedroom, kitchen, or bathroom
- Repairing plumbing
The above improvements cost thousands of dollars to complete, which is a significant investment for the average person. Before going all out with home renovation, begin with smaller projects first.
Instead of overhauling the entire room, consider giving the walls and ceiling a fresh coat of paint or installing new rugs and window treatments. For your kitchen, you could use the loan to purchase new appliances.
Loan Mistakes to Avoid
Once you know how to get a loan to remodel your home, it’s also crucial to avoid the common pitfalls that come with it.
Non-Value-Adding Projects
Choose upgrades that add value to your home, especially if you plan to put your property on the market. Not all modifications have the same returns on investment—some changes can even decrease home value, resulting in losses when it’s time to sell your house.
Budget Overruns
Make sure your loan covers most of the project’s costs to avoid unexpected shortfalls. Create a budget that includes at least 10 to 15 percent of total expenses as a reserve for overruns. Also, monitor your spending to prevent going over budget.
Inaccurate Timelines
Set a reasonable timeframe for project completion by factoring in possible delays, such as lack of supplies or contractor issues. Also, keep in mind that delays tend to come with a cost. They can sometimes affect your daily schedule, which could take time away from your work and family.
Let Us Help You
When exploring your options for how to get a loan to remodel your home, turn to Power Finance Texas. As long as you have a valid Texas driver’s license, we can help you achieve your dream home, one renovation at a time.