It’s a sunny spring day and you look out your window to see gorgeous new shutters on the house next door. The following week, you see the same thing at another neighbour’s house. And once again the following week. Home improvement is something that many homeowners will want to take advantage of in their own homes, but it can be challenging to find the money for such projects. Fortunately, there are several financing options available for home improvements blog projects. Several different loan types may be able to help fund your renovation project, including home equity loans, renovation loans, private lender funding and more. Let’s take a look at some of your options.
What is a Home Equity Loan?
A home equity loan is a second mortgage on your house. You make payments on both the principal and interest of the loan just as you would on your first mortgage. The interest rate for a home equity loan is usually variable and is based on current interest rates. There are no credit checks for this type of loan, and it is also typically available to people who have not yet paid off their existing mortgage.
Home equity loans are sometimes called “second mortgages” or “home equity lines of credit” (HELOCs). A second mortgage can be helpful if you’re looking to fund a major home improvement project, like building an addition or remodelling a kitchen. But, be aware that a second mortgage can put a significant lien on your property and make it more difficult (or even impossible) to sell your house in the future.
Renovation Loans
Renovation loans are a type of loan that is used to fund home improvements. These loans are secured by the equity in your house and are used to pay for renovations such as remodelling a kitchen, or bathroom or adding a new room. You can get a renovation loan from a bank or other financial institution to cover the cost of home improvements, including new appliances, new flooring, a new roof and more. The renovation loan is usually a second mortgage on your house, which means that you pledge your home as collateral to secure the loan.
Private Lender Funding
If you don’t want to take out a loan at all, you might consider getting funding from a private lender. Private lenders may offer you a loan without requiring a credit check, and without charging interest. The terms of these agreements vary widely, but some common types of agreements include equity sharing, sweat equity and crowdfunding. Equity sharing is an informal arrangement in which a private lender gets a percentage of ownership in exchange for funding the improvement project.
Sweat equity is also an informal arrangement, in which the private lender and borrower agree to trade labour for funding. Crowdfunding is a more formal arrangement in which the borrower raises a lump sum funding amount from a group of people. The advantages of private lending are that there are no credit checks or bank approval necessary and the loan terms may be more flexible. The disadvantages are that you won’t have any collateral to fall back on if the lender doesn’t get paid back.
Instalment Loans
An instalment loan is a loan that is repaid in regular instalments over some time, usually with a set due date. Instalment loans are usually interest-free. Instalment loans are often used to fund home improvement projects. They’re also known as “construction loans” or “home repair loans.” Instalment loans are usually granted by a government agency, such as a state housing authority, a nonprofit organisation or a municipal government.
They’re available to people who meet the income requirements of the loan program. In some cases, instalment loans even come with a low or no-interest rate. As you can see, there are a variety of options to fund your home improvement projects. Whether you choose a home equity loan, a renovation loan or another type of loan, make sure you understand all terms and conditions before you sign on the dotted line.