Renovating your home is not something you do one fine day all of a sudden. To ensure that the project is successful, you need to assess your priorities and decide what exactly you want and why you want them. The need for putting in a lot of thought stems from the fact that home renovations tend to need a lot of investment in time, effort, as well as money – all precious resources. The amount of money that a typical home renovation costs can differ depending on what you intend doing but normally the amount far exceeds what you would have as savings in your bank. This means that you would need to borrow money but since timing is everything, take a quick look at how you can make the process smoother:
Consider Your Funding Options
Accessing funds for the home improvement project can be done in a variety of ways. Perhaps the most convenient is swiping your credit card; however, the steep rate of interest that most cards charge can mean a severe drain on your resources. Of course, you can use a store card that gives you a zero percent rate of interest for a promotional period and discounts on your purchases to boot, however, you need to settle all your dues by the end of the promo period, otherwise, you will be stuck with a high rate of interest. Personal loans can also be very handy but the rate of interest will depend on your credit score. You can also consider a home equity loan that uses the existing equity in your home as collateral. This gives you access to funds at a more reasonable rate; however, you need to take care not to default because you could end up losing your home. A home equity line of credit is even more economical as you do not need to withdraw the entire amount at one go but can use the line of credit to use the funds in a staggered way as needed. Unlike a home equity loan where the rate of interest is fixed, usually, HELOC has a variable rate of interest that fluctuates with the bank rate. Both these loans may carry a number of charges and fees so it is essential to read the terms and conditions carefully.
Apply For the Loan Well In Time
Whichever funding route you choose, you need to keep in mind that you should apply for the loan well in time; otherwise, you may find yourself stranded without the funds. Allow for at least one month for the lenders to process the application. It is important that you first find out how much you need and add on a reasonable margin because it is quite normal for home renovation projects to encounter complications while in progress or you may just decide on extending the scope of something you were doing to give it a better balance. Lenders can be very generous regarding your loan eligibility limits but remember that taking on more than you can repay without stretching yourself can be a recipe for disaster. Renovations are not worth it if you are going to lose your home due to foreclosure or end up with debt collectors chasing you for the payment.
If you already have too many debts, you should be more careful as overexposure could lead you straight to a protracted process of debt settlement even with the help of a professional agency like Nationaldebtrelief.com. The determination of the loan term is a major factor that you need to take into account. A long-term loan may well be worth the extra interest outgo if you are undertaking a major renovation like adding an extra room or replacing your roof, however, relatively minor jobs like flooring, painting, etc. should be tackled with a loan that you can pay back in the shortest possible time.
Shop for the Best Offers
Lenders are not doing you any favor by extending a home improvement loan to you even though they may lead you to think otherwise. Never jump to sign up with the first lender that agrees to give you the loan. Remember, you have a lot of choices and the sector is very competitive so it can pay off well if you take the trouble of shopping around. Many of the lenders have websites that provide you with a facility of getting the quote so you should go ahead and get yourself prequalified with multiple lenders so that you can compare and settle for the best offer. Insist that the lenders perform soft inquiries as multiple hard inquiries can damage your credit score.
Consider Your Loan Eligibility
Even before you start applying for the loan, you should find out how qualified you are to take the loan. The most important factors that lenders consider are your credit score and history, debt-to-income ratio, and loan-to-value. Normally, to qualify for a home improvement loan you will require a FICO score of minimum 620; however, for poorer scores, many lenders will charge higher rates to compensate for the extra risk. Before applying for a loan, you should get a copy of your credit report and find out if there are any errors that may be pulling the score down, in which case get them rectified before applying for a loan. According to https://www.myfico.com, more than one-quarter of the participants of an FTC study found at least one error in their credit reports which was responsible for damaging their credit scores. The loan-to-value ratio is important for home equity lenders who prefer to have a larger cover against collateral security. The debt-to-income ratio of borrowers is an important consideration for lenders who prefer that borrowers have the ratio below the 43% mark recommended by the Consumer Financial Protection Bureau to keep them adequately covered against a possible default.
For a successful home renovation project, your aim should be to find a lender who understands your requirement and give you the best possible deal without entangling you in paperwork and charging steep fees. Conduct research among lenders recommended to you by your friends and neighbors and apply to the ones where you are eligible. Try to find a lender who is comfortable working with customers of your profile and willing to entertain loan application for the amount you require and not impose high rates of interest or fees. Approaching lenders that have a good rating by JD Powers or the Better Business Bureau may be more fruitful.