How To Get a Home Improvement Loan
In tough economic times, it is even more difficult to get a home improvement loan than in latter years. Home Improvement Loans are completely different from most other loan types due to all the variables involved.
Almost all lending institutions have a basic set of instructions that need to be followed to get approved. But, banks differ and will inevitably have other steps you have to take. So, your first rule of thumb is to make sure you thouroughly understand what is expected of you before applying for your loan.
Taking the correct steps at the correct time can make all the difference in the world when applying for your loan!
How To Get a Home Improvement Loan
Here are the basic steps involved in gathering your information for your loan application:
Get Estimates
So many of us have a great idea of what we want to improve about our homes, but have no idea of how much it is actually going to cost. So much goes into home improvement projects that we don’t consider, like the cost of supplies, cost of fuel, hourly rate for contractor helpers, etc. When you decide on the type of project you would like to have done, its worth getting more than one estimate. Most contractors will meet with you and find out your wishes, then return will with several different price range options. Getting more than one estimate not only gives you price options, but one of the contractors could actually have some new or unique ideas for your projects that you had not previously considered.
When getting your estimates, if you go to a reputable contractor, they will know how detailed the information has to be when it is presented to the lender. The more detailed the estimate, the quicker things can move with the lending institution.
Home Equity
Home improvement loans are considered “secured” loans – which in basic terms means that you need to have equivalent collateral to offer the bank in case you default on your loan. Most lenders want this collateral in your home, so knowing what type of equity you have is very important. Equity in your home is any extra value you have in your home over and above what you owe. You may think you don’t have much equity or you may think you have tons, but you really don’t.
You can get an idea of your equity by using some online tools such as Money Central or Lending Tree, as well as checking out the recent selling prices in your neighborhood. However, once you apply for a home improvement loan, the lender will probably send out a professional estimator to calculate your equity.
Monthly Income
This is probably the most important aspect of getting a loan of any kind. Obviously, if you are struggling or unemployed, you probably will not be considering most types of loans, and especially home improvement loans. For most people that have a steady income, you will only need to provide your paychecks for proof of income, but you may also need to provide tax returns. Lenders are looking for steady income, so if you have changed jobs several times this year, that could be a possible sticking point. However, if layoffs were involved and you continued employment in your same field, it probably will not be an issue. If you are self employed, you will need copies of your tax returns for several years to use as proof of steady income and a viable business.
You may also be asked for a list of your current monthly expenses. Most of these will be included on your credit report, so it would probably be best to pull your credit report before applying for any loan. You can get a yearly free credit report at Annual Credit Report.
Neighborhood Comparisons
Have you ever known anyone that bought the “big house” in a neighborhood full of homes that do not compare to it? This is a big no-no when purchasing a home and this also applies to home improvements. You don’t want to do too much to your home and expect to receive it back when you sale, if you have out-priced the home. For instance, if you live in a neighborhood full of homes with average square footage from 2000-2500, then you would not want to add an addition that would make your home 5000 square feet. You will never get your money back when you go to sale.
Your best bet would be to do some comparatives in your neighborhood whether it be how much a home sold for that has the same options as yours, or you can usually go on your local government website and check out your neighborhood on the GIS system. The GIS system lists all the homes in your neighborhood, how much they are worth, square footage and any upgrades.
When you decide to apply for a home improvement loan, be prepared for tons of paperwork, leg work, estimates and research. They can take anywhere from a couple of weeks to a few months to be approved, so be ready for a waiting period. The more you prepare ahead of time, the more the lender will be impressed with how serious you are about your home improvements and thus, you are more likely to get approved.
For more tips and resources, please visit the Home Improvement or Finance & Money sections of our website.
