In the United States, 92% of existing homes were built prior to 2000, and the majority of houses could benefit from some upgrades or renovations. In fact, 91% of homeowners feel their homes need renovations, ranging from minor updates to major overhauls. When it comes to funding those upgrades, home improvement loans are a commonly explored option.
Home improvement loans are beneficial for many reasons. Here’s a look at the pros of home improvement loans.
They Help You Repair or Remodel
The most significant advantage of turning to home improvement loans is that they’re a straightforward way to fund renovations and updates. Often, they come with lower interest rates than some alternatives since the house typically serves as collateral. This can make home improvement loans more affordable than options like personal loans.
Overall, home improvement loans can make funding renovations and upgrades easier, particularly when compared to saving up the money to pay in cash. As a result, problems are addressable faster. That can keep the home livable and even reduce the total cost when compared to having to delay a project with the chance that subsequent damage will raise the price.
They Increase Home Values
Renovations, repairs, and upgrades can increase the value of a home. Fixing damage is a clear value-add. Additionally, updating systems, fixtures, surfaces, or various finishes can increase a property’s market value.
Many types of home renovations lead to home value increases above the cost of getting the work done. As a result, a homeowner could recover some or all of the equity they tap to make the improvements. Plus, that equity may continue to grow as they pay down any collateralized home improvement loans or other mortgages, allowing them to build up the value of a critical asset.
They Build Credit History
As with most lending products, home renovation loans are usually reported on a borrower’s credit report. Since that’s the case, the loan can impact a homeowner’s credit report and score, potentially for the better.
On-time payments often lead to credit score gains over time. Additionally, home improvement loans can help borrowers maintain a good credit mix on their credit report if they otherwise primarily have credit cards, which can lead to score improvements.
Many home improvement loans also have long repayment terms. As a result, it could help keep the average age of a borrower’s open accounts higher as they get further into the repayment period.
They Provide Access to Larger Amounts of Money
Often, it’s easier to get substantial sums for high-cost renovations or repairs with a home improvement loan than alternatives like personal loans. As long as the payment doesn’t push a borrower’s debt-to-income ratio above the lender’s limit and the total amount borrowed allows the homeowner to maintain 15–20% of their home equity, homeowners can potentially bank all of the remaining equity.
The maximum amount that’s borrowable will vary by lender and borrower-related factors like income and credit score. However, since home improvement loans are typically collateralized, it’s often simpler to go this route than to get a personal loan for a similar amount.
