How Do Home Renovation Loans Work? When Should You Consider One?
Many reasons can compel you to renovate your property. You may want to upgrade your old house or a newly acquired fixer-upper to make it more livable. If you are looking to sell your home in the future, you can revamp it or do some additions to increase its value.
Home remodelling can be pricey considering the materials required and the amount of work involved. Other factors like permits and garbage disposal can see your budget go through the roof. Fortunately, Canadian homeowners can utilize a home renovation loan to finance their house remodelling projects smoothly.
Understanding Home Renovation Loans
Lenders like banks give home improvement loans to property owners to facilitate their home upgrades and repairs. With decent credit, most financial institutions will open the doors for you. It's essential to speak with an expert to find all the different ways to finance your project.
For example:
Option 1 :
Increase your existing mortgage.Option 2 :
Get a second mortgageOption 3 :
Get a home equity line of credit (HELOC)
A home renovation loan offers property owners a wide lending range. Depending on your needs and lending terms, you can borrow as low as $5,000 or even $100,000. The amount you need may change which option above is best.
Loan amounts and contract terms play a role in determining the payback period. Just make sure you are aware of all the terms of your loan and not just the interest rate. The financial institution may have different requirements for larger amounts than they do for smaller amounts. Besides banks, other home renovation loan lenders include credit unions and a myriad of online personal loan providers.
Getting Approved for a Home Renovation Loan
In general, lenders will be happy to approve you for a significant amount and low-interest rate when you have a decent credit history and stable income. You must also convince the lender that you will commit the funds to the stated project. The value of your home and therefore the amount of home equity you have will also influence the possibility of approval.
Some conditions may increase your odds of getting a quick approval with favourable terms. You stand a better chance if you have:
- A steady job and a reasonable household income
- A clean credit report
- Good credit score (650-900)
- An active savings account
- Equity in your home
- Honesty throughout the loan application
Not every point above is mandatory, but you can improve some areas before applying for the loan. For instance, you can consolidate your debts in advance or dispute any errors included in your credit report.
When to Consider a Home Renovation Loan
There are times when borrowing money to remodel a home makes more sense than others. Consider the following examples.
Before Selling Your Home
If you're to sell your home, it's in your best interest to make it more presentable to prospective buyers. Renovations like kitchen upgrades, bathroom remodels, and front door facelift will make your property more attractive and increase its value. Assess your home and improve the right places.
When Hoping to Cut Your Long-Term Costs
Some repairs and home renovations can potentially save you money in the long run. For instance, updated windows, siding repair, and roof replacement can enhance weatherproofing and make your home more energy efficient. The house will also be more comfortable and safer.
Caution: How Much Renovation Is Too Much?
One mistake with homeowners is borrowing so much for renovations that the house becomes more expensive than comparable properties. Beware of the property prices in your neighbourhood. You might end up selling your home at a loss if you’re not careful.
Home Renovation Loans in Edmonton
For flexible and affordable home renovation loans in Edmonton, Dominion Lending Centers is here to help. Contact us today for a home renovation loan and our mortgage brokers will answer your questions.
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