Home Equity Loans To Make Home Improvements
January 24, 2010 by · Leave a Comment
If you have built up equity in your home and want to make some much needed improvements to your home then a home equity loan is one way to do it. There are two forms of home equity loans- a one time loan and a line of credit.
A one time loan means that the borrower will receive a lump sum of money and then must repay the loan in equal monthly payments. On the other hand, a line of credit for a home equity loan works very much like a credit card. When you need money from the line of credit you take it out and if you so choose you can pay the interest on the balance and not the principal right away.
Most people decide to apply for home equity loans because they want to build an addition onto their home or they want to renovate but you can also apply for such a loan for an abundance of other reasons. If you wish to start a small business, buy a new vehicle, travel, consolidate your debts or even just have money put away for a future purpose, a home equity loan can be a good way to do this.
The reason you wish to apply for a home equity loan can dictate the kind of loan that you best qualify for. A home equity loan or home equity line of credit can be an effective way to get the work done that you need. However if the renovations you plan to do are very big and very expensive you might want to consider a rehab loan. A rehab loan will create a base for your home equity loan at the “as completed” value attached to your property. Some rehab loans allow the borrower to do the renovations themselves whereas others stipulate that a licensed contractor must be hired to complete the work.
It is important to make improvements in your home that will add value to it. Some improvements may give the home a better aesthetic look but really play no role in the value of the home. To find this out ahead of time talk with a local appraiser and/or a mortgage broker.
Most home equity loans that are used to make home improvements or pay off mounting debts can be deducted on your taxes. This is very good news when you are contemplating remodeling your kitchen or bathroom or putting in a hot tub in the basement! Remember that although you are using the equity in your home, you are also doing things that will increase its overall value.
A home equity line of credit will allow you to take the money out as you require it and not all at once. In this way you pay the interest on smaller amounts in smaller increments.
