Home Improvement Loans

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The roof is leaking, the paint is peeling or the carpet needs replacing. There are many reasons that one may need a home improvement loan. There are many lenders ready to lend money for home improvements. The Federal Trade Commission advises that homeowners should use care when shopping for these loans. There are fees including, but not limited to application, loan processing, origination, underwriting, lender, funding, and document preparation and recording fees. These fees may be quoted by lenders as points and are similar to the closing costs of the original mortgage. Compare the fees as well as the interest rates and payment amounts that different lenders offer, before making a final decision and remember that you have three days to cancel for any reason and all moneys paid must be returned to you.

FHA Title 1 Loans

The Federal Housing Administration (a part of the Department of Housing and Urban Development or HUD for short) provides principal mortgage insurance (PMI) for approved lenders offering home improvement loans. Most lenders refer to these as FHA title 1 loans. The advantage to these loans for the homeowner is that there are no equity requirements for owner occupied properties if the amount needed is under $15,000. So, even if you have only owned your home for a short while, you may be able to borrow money for materials, contractor fees, and architect and engineering costs associated with needed home improvements. Another advantage particularly for small repairs or do-it-yourself projects is that no security other than your signature is usually required for loans under $7,500. This means that your current mortgage or deed is not affected. Borrowers may also include the cost of building permits, title examination fees, and appraisal and inspection fees in the amount to be borrowed. Lenders will require certification that the work has been completed. If you are a good credit risk and qualify for one of these loans, they will usually carry the lowest interest rates and payments. Check with your current bank, credit union or mortgage company for more details and information.

Other Options

Some city and state governments have funds for emergency repairs for homeowners who do not qualify for other loans. Some offer very low interest rates for home improvement loans as part of neighborhood renewal or other programs. Some veterans and their families are eligible for certain home improvement loan programs offered by state or local Departments of Veterans affairs. Check with your city, state or even county government offices to see what if any plans they offer for homeowners in need of home improvements or repairs, before you borrow. A second mortgage may sound scary, but may actually be less expensive than a "home equity" loan or line of credit. Second mortgages general carry fixed interest rates and payment amounts. A home equity loan or line of credit may have variable interest rates and many have large final or balloon payments. Some borrowers have ended up have to borrow more money in order to pay off that balloon payment. So, as you should with any loan, shop around and compare fees to make sure that you are getting the best deal.


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