What Is A Home Improvement Loan And Is It Right For You?

If you need cash for a renovation or major home repair, a home improvement loan might be a good option to consider. (New American Funding),

Whether you’re a new homeowner or have lived in your current home for years, home improvement projects can refresh your space or fix long-standing problems. However, larger renovations to rooms like the kitchen and bathroom often cost tens of thousands of dollars — cash that the average homeowner may not have lying around.

Fortunately, home improvement loans (or home renovation loans) can help you finance these renovations, repairs, and upgrades to your home. Learn all about different types of home improvement loans, then reach out to a Loan Officer at New American Funding to apply for one that meets your needs.

Types Of Home Improvement Loans

There are several different options for financing a home improvement project through a loan, including:

FHA 203(k) Rehab Loan. The Federal Housing Administration (FHA) offers this loan to properties in need of significant renovation. Borrowers who finance a fixer-upper’s repairs use this all-in-one loan instead of applying for a separate mortgage loan and renovation loan. Less commonly, by refinancing their existing mortgage, homeowners intending to renovate their existing property can apply for an FHA 203(k) Rehab Loan.
FHA Title 1 Property Improvement Loan. This FHA loan provides an option for homeowners who don’t meet private lenders’ credit and equity requirements. To qualify for this loan, you must own the property title, have the ability to make monthly payments and maintain a debt-to-income ratio under 43%. If the home is newly built, it must be complete and occupied for at least 90 days.
Cash-Out Refinance. Cash-out refinancing is an ideal option when mortgage rates are low. It enables homeowners to pay off their first mortgage and replace it with a larger loan that results in a lump-sum cash amount they can use for home improvements. Borrowers will usually get access to up to 80% of the home’s value. To initiate a Cash-Out Refinance, your minimum credit score must be at least 580.
Home Equity Loan (HELs). A HEL borrows against your current home equity to secure funding. While homeowners can use this on costly renovations or repairs, others may use HELs to finance college, consolidate debt, or pay for long-term medical care. However, these loans can be risky and are best for homeowners who can comfortably afford long-term debt.
Home Equity Line of Credit (HELOC). Like a HEL, a HELOC borrows funds against your home equity. However, homeowners receive a revolving credit line, rather than a lump sum payment. These are generally more flexible and can be a good option when a repair or renovation doesn’t have a set price tag.
Personal loan. Getting an unsecured personal loan can be an option for those with good to excellent credit scores. These loans don’t require your home as collateral and tend to have monthly repayment plans with shorter payback periods than other financing options.

How To Plan And Budget For Home Improvements

If you’re considering a major home improvement project, here are a few basic steps to help you figure out how to finance it:

Choose A Project — If you’re a homeowner prepping to sell your current residence and want to put money into making your home more valuable, consider tackling renovation projects that will increase the value of your home, like an updated kitchen, more storage space, or another neighborhood-specific standard.

Establish A Budget — Understand your personal budget and get an estimate of how much the project might cost. Research incentive programs to discover if you can save money on your project — for example, certain energy efficient appliances may come with tax credits etc.

Talk To An Experienced Lender — Once you’ve decided on your project and know how much it will cost, talk to a mortgage lender to find your best financing option. At New American Funding, a Loan Officer can help you navigate different funding and loan options while keeping your financial freedom and project needs top-of-mind.

How To Secure A Home Improvement Loan

Securing a home improvement loan doesn’t have to be complicated. By following four simple steps, as a homeowner, you can determine your eligibility and apply for the loan that benefits you the most.

Get your finances in order. Most lenders, depending on the loan you’re looking to apply for, want to see a credit score between 500 and 700. If your credit score falls below that range, work to pay down your debt.
Get pre-qualified with a lender. Getting pre-qualified with a lender like New American Funding can help you find potential mortgage rates within your budget. It also shows your approval odds for a loan.
Apply for the loan. Applying for a loan is relatively straightforward, especially if you’ve been pre-qualified. Make sure you have your personal and financial information accessible to make the application process as simple as possible.
Wait for the decision. The lender’s decision process can take several business days. If you’re approved, your lender will give you a time frame for when to expect the funding.

Buy (Or Build) Your Dream Home With New American Funding

New American Funding believes homebuyers should have the opportunity to live in the residence of their dreams — and understands dreams may reach beyond the price range of many families. To help, the company offers a variety of programs to help homeowners find (or build) their dream home, including:

NAF Cash* — NAF Cash, an affiliated company of New American Funding, will purchase your dream home upfront with a cash offer, which tends to be stronger in the eyes of sellers and could help you save on the purchase price. Then, you can purchase the home back at the original price (plus a minor convenience fee).
5-Year Rate Protection Pledge — With New American Funding’s 5-Year Rate Protection Pledge, you can purchase (or refinance) a house now and refinance anytime within the next five years if interest rates drop. This refinancing offer comes free of any lender or appraisal fees.
Buydown Loan — A Buydown Loan can be a great option for first-time home buyers working with little funds to make necessary home improvements or upgrade outdated appliances. This loan offers homeowners a lower payment rate on the first, second or even third year of a 30- or 15-year fixed-rate mortgage.

If you have questions about these programs or any step of the home-buying process, a Loan Officer at New American Funding can help provide individualized assistance.

Buying a home, refinancing or taking out a loan is a significant financial decision. You need a partner that has your best interest at heart, will talk you through every step of the process, and will ensure you feel comfortable in your financial situation. New American Funding’s breadth of programs and customer support ensures a great experience and has been nationally recognized for its commitment to its customers.

In 2022, New American Funding was recognized as #1 in customer satisfaction among mortgage servicers by the J.D. Power 2022 U.S. Mortgage Servicer Satisfaction Study. The company was able to achieve this prestigious recognition through its dedication to helping every client from every background achieve homeownership.

If you’re ready to finance your upcoming home project, turn to New American Funding to explore loan options. Contact an experienced Loan Officerto get started.

*NAF Cash is fulfilled by NAF Cash LLC, an affiliated real estate company of New American Funding that is managed and operated in compliance with applicable legal and regulatory requirements. NAF Cash LLC does not originate loans or issue loan commitments. Terms and Conditions apply. Not available in all states. MI Real Estate Broker #6502431375. 41050 W 11 Mile Rd, Suite 220, Novi, MI, 48375. Phone 844-344-0531.