Among homeowners, the median planned spend for renovations is $15,000, and that’s far more than many homeowners can comfortably cover out of pocket. For anyone who’s among the 91% of homeowners that believe their property is in need of work, getting a home improvement loan could be an excellent option for funding the cost. As a result, it’s wise to know how to apply for a home improvement loan. Here’s an overview of the process.
How to Choose a Loan Type
The first step homeowners need to take is determining what home improvement loan type is best for them. Options like cash-out refinancing and home equity loans are highly similar to mortgages. They use the house as collateral, leading to lower interest rates in many cases. Additionally, they often provide lump sums and come with longer repayment periods.
A home equity line of credit (HELOC) is also a collateralized option, but it functions differently. Homeowners are approved for a credit line, and they can withdraw funds against it as needed until they reach the maximum. Interest is only generated based on the amount used, and the withdrawal period – which usually lasts 10 years – typically comes with interest-only payments.
Alternatives like personal loans generally have fewer restrictions regarding how the money is spent, which is beneficial in some cases. However, terms are potentially shorter, and interest rates are often higher. Plus, borrowing criteria may be stricter, particularly if it’s an unsecured personal loan.
How to Choose a Lender
After deciding on a home improvement loan type, it’s time to evaluate lenders. Usually, this process begins with research. Explore the interest rate ranges and fee structures offered by various companies. Additionally, check credit score and debt-to-income ratio requirements.
As you narrow down the list, factor in each lender’s reputation. Read reviews from multiple sources – including sites like the Better Business Bureau (BBB) along with social media – to get a stronger picture of the typical customer experience.
Also, take a deep dive into each lender’s website to look for red flags associated with scams. That could include no reliable contact information, promises of guaranteed approval, or any statements that make a lending product seem too good to be true.
What Information Do You Need to Provide?
Once you find a lender, you’ll need to complete an application and provide supplemental documentation. Along with your name, you’ll need to fill in other personally identifiable information (PII), like your contact details and Social Security number.
Additionally, you’ll need to provide information about your income and may need to provide supporting documentation. The required documents could include tax returns, W-4s, 1099s, pay stubs, and bank statements.
For home improvement loans that involve using the house as collateral and tapping available equity, information about the house and any current mortgage is often required. For some loans, you may need to provide details about the planned renovations.
Ultimately, every lender’s process can vary. As a result, it’s wise to speak with a representative before beginning an application to confirm precisely what’s required, giving homeowners a chance to gather what’s needed in advance.
