How to Use Home Equity Loans to Finance Home Renovations

Are you thinking of remodeling your home? The factor to consider is the funding for the project. It is amazing to own a home you will enjoy living in, and having the options to enable you to afford a few remodeling is also important. The amount you already have as equity on the home may help cater for the remodeling costs. You can easily revamp that old deck into something pleasant. Therefore, using a home equity loan to cover home renovations can be a great solution to change the look of your home.

Most banks can agree to lend about 90% of your home’s equity value. Make sure you talk to your lender to know the amount of home equity you can get because the amounts, terms, and even rates may vary. The amount you are allowed to borrow will then be used to fund the remodeling project.

In this article, we’ll explore ways to use home equity loans to fund home renovation projects.

Is it Possible to Use a Home Equity Loan to Renovate?

Yes. Home equity loans are the best financial options to give your home a new look. These loans usually don’t come with restrictions. You can use the funding the way you want. Even though remodeling a home won’t improve the resale value, there will still be an added functionality. Besides, the beauty will also be added which makes it welcoming.

When borrowing an equity loan, you will only get a certain percentage of it, about 80% of the value. If the home equity value is Rs. 200,000, a lender will allow you to borrow Rs. 160,000.

A home equity loan is secured meaning, is backed up by collateral. Your home will serve as collateral. The amount is given in a lump sum to allow you to use it for your desired purpose. However, note that the repayment of the home equity loan is separate from the mortgage payments you might have.

The payments entail the principal and interest. The principal amount is the amount you took for the loan, and interest is fixed. So, when repaying the loan, you will be paying the principal and interest. Since the home is used as collateral, it can be foreclosed in case you fail to repay the loan in full.

How to Use Home Equity Loan for Home Renovations

As said, home equity loans are just the best options for some of the projects concerning your house, like renovations. It could just be what you need to give your house that charming look. But how to use the funds? Below is a step-by-step process;

1. Know the value of your home equity: The first thing to do is calculating the home equity to know if you will be eligible for the loan and how much you’ll be getting. Plan properly to determine if the amount will be enough for the project.
2. Check the credit score: It is true that every lender has their own requirements of the credit scores, when dealing with home equity loans. Just the same way an NBFC personal loan lenders check your score is the same way home equity loan lenders will. So, it will help if you know where your score stands beforehand to prevent any unpleasant surprises like rejections. Besides, you will be able to narrow down potential lenders that may grant you loans with the score you have.
3. Look for the lender to secure the loan:  You will find lots of lenders offering home equity loans. Just the same as there are many, it is the way you will easily land a not-so-good deal. You need to make sure you are getting the right lender that offers a loan affordably. Look around and compare lenders to find the best offering better terms. You might get better rates from other lenders.
4. Apply for the loan: The process of applying for a home equity loan is similar to that of mortgages. A home equity loan is not a type of instant loan without documents because you have to provide detailed information regarding your finances. It can be income, the liabilities you have, and more.
5. Wait for loan approval: After completing the application, you will have to undergo an underwriting procedure. At this time, you have to provide more of your personal details and other documentation if needed. This will determine if you can get the loan or not. Make sure the documents are legit and accurate. Ultimately, your loan will be approved, and you can wait to receive the funds.

Remember, home equity loans can delay. It is not an emergency loan you may get the same day of getting approved. You will have to wait for days or even months to get your funds. The most important thing is to have a plan ready and stick with it. Don’t be spendthrift. Always remember, this is a loan that has to be repaid later.

Conclusion

Home equity loans are no doubt superb opportunities for homeowners seeking to renovate their homes. These loans give the homeowners a chance to borrow the funds against their house’s equities. The interest rates are normally lower than personal loans. The good thing is that these loans are tax-deductible, which is a plus.

While it is a powerful strategy to pay for home improvements that can maximize the living space and level up property value, you have to be cautious not to be trapped in debt. You can also look at some alternative financing options, such as NBFC loans.