Some loans are designed to help homeowners and potential buyers renovate a home. These home improvement loans grant borrowers access to quick cash necessary to remodel, renovate and revamp their houses.
Other home loans include conventional loans, FHA loans and VA loans. Learn more about these loans to find which mortgage is right for you.
Home Improvement Loans
Home remodel loans, otherwise known as improvement loans, are tailored toward homeowners and homebuyers interested in renovating a house. Depending on their goals and homeowner status, individuals may choose a loan that includes the purchase price of a house in addition to the cost of estimated renovations. Other home improvement loans are designed for current homeowners interested in updating their digs in order to continue living in it.
Thanks to the popular HGTV show “Fixer Upper,” more and more Americans are channeling their creativity and choosing to buy a home in need of repairs. Home remodel loans like the FHA 203k loan is insured by the U.S. government, which means lower down payments and a few other perks. To qualify, the total cost of renovations must be greater than $5,000.
Bad credit home loans are other popular choices among homebuyers. Those with poor credit can still purchase the house of their dreams through the Section 504 Home Repair program. Low-income families and elderly homeowners can use this program to fund the cost of home or bring their houses up to safety standards.
Conventional Home Loans
Traditional home loans are offered by private lenders, banks and other financial institutions to help potential homeowners secure funds for a home. Unlike home remodel loans, these types of loans only cover the cost of the house itself.
Conventional home loans are more strict than other types in terms of qualifications and payment schedules. For example, most require homebuyers to put down at least 20 percent of the purchase price up front. This can be a hefty chunk of change, which makes these types of loans a bit less popular.
For those with bad credit, home loans offered through private lenders are a little more out of reach. Since private lenders are not financially backed by the government, they take more of a risk in approving a homebuyer. If a borrower fails to repay the loan, the lender takes a hit.
FHA Home Loans
Some types of home loans are backed by the U.S. government, including the FHA home loan. The Federal Housing Authority (FHA) insures these loans, which allows lenders to have looser eligibility requirements. For example, a typical down payment with an FHA loan can be as low as 3.5 percent.
FHA home loans do have a few income-related requirements, which includes a low debt-to-income ratio and proof of employment. One disadvantage of an FHA loan is the mortgage insurance requirement, which can add up over the long run.
Applying for Home Loans
The application process for home loans varies depending on the type of loan for which someone applies. Generally, borrowers must provide a few key documents, including:
- Proof of residence (utility bills, pieces of mail, government-issued ID, etc.).
- Proof of income (W2 forms or income tax papers).
- Proof of employment (pay stubs or bank statements).
- Proof of identity (birth certificate, Social Security, etc.).
Applying for home improvement loans may also require borrowers to submit appraisals or repair estimates from licensed contractors. The lender must be able to verify the pre-determined cost of renovations.
After finding a lender, completing an application and submitting all necessary documents, borrowers can be approved in as little as a day. Purchasing a home is an important step for many Americans; with these home loan options, it is more accessible than ever before.
