What Home Renovation Loan Options Exist in the United States

In the United States there are several loan options – in addition to personal loans – that can be used for home renovation or repair projects, even for those that involve large expenses.

Whether to renovate, remodel or repair a home, in the United States there are several loan options that can be adjusted to the needs and possibilities of each applicant, providing a series of advantages in addition to financing for your project. Some of these options may be related to a mortgage or require the use of the same home that is intended to be remodeled or repaired as collateral. On the other hand, some of these loans may even go towards the purchase of a low-cost home, as long as the applicants meet the associated requirements. However, in general, all are very useful for reforms or repairs in properties already acquired.

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Although many people do not consider it, home improvements and repairs are usually a good investment in the United States because they revalue the property, generating long-term benefits, in case the applicant decides to move in the future and sell it. In that sense, loans for this purpose represent the most valuable tool, especially if you do not have enough capital or do not want to use the funds saved for the future.

What are the home renovation loan options I can apply for in the United States?

In the country there are several loan options that can be used for the renovation or repair of a home. Some of them are granted by the government of the country and others can be requested from private financial institutions or banks. Of all of them, personal loans are usually the option that does not require a guarantee, the others involve the use of the property to meet this requirement:

1. Fannie Mae HomeStyle Loan

Granted by the government, this option allows the beneficiary to refinance existing mortgage loans with the obtaining of money for improvements or repairs. It can also be requested for the purchase of a home that needs improvements or repairs. Its main advantage is that it allows to reduce closing costs and makes the beneficiary also reduce the time in which he will cover the debt, especially in those cases with pre-existing mortgages. This is because the loan covers two needs at the same time: the mortgage and repairs or improvements.

The Fannie Mae HomeStyle loan is also convenient because the applicant will not have access to the funds, as these go directly to an account that is used to pay workers to carry out repairs. However, it only covers 75% of the total cost and 50% in the case of prefabricated homes. This loan requires a good credit score (at least 620).

2. FHA 203(k) Loans

FHA 203(k) loans — also provided by the government — are divided into two types: those limited to $35,000 and those that are used for major repairs and therefore tend to be more generous. Although the application process can be difficult, it is important to note that there are specialized advisors to guide people through the process with the intention of obtaining the best results.

To obtain this type of loan, the applicant must have a credit score of at least 580 and meet certain conditions:

a.) Do not make repairs on your own.
b.) Do not use the funds for luxurious upgrades.
c.) Spend the loan on the main home.
d.) Have a mortgage insurance premium (MIP).

3. Home Equity Loan and HELOC Loan

To apply for these types of loans, people must use their home as collateral. They are usually particularly useful for those who have other debts related to home improvements, especially home equity loans because they require a monthly payment with a fixed rate for the duration of the loan term. HELOC loans, although similar, have variable rates, therefore, the amounts can increase, a feature that makes them riskier, especially if you add the fact that they allow you to renew the credit limit.

According to experts, it is important to consider this type of credit when the repair or remodeling that is intended to be done really increases the value of the home. When people do not make the corresponding payments, they can lose their home.

4. Refinancing with cash withdrawal

This type of loan is designed to refinance a previous mortgage for a larger amount, allowing the beneficiary to withdraw the difference in cash. It is usually beneficial when the applicant has a high interest rate on their previous mortgage and refinancing offers a lower one, allowing them to meet payments more comfortably while carrying out repairs or reforms in the home.

Refinancings are also used for other purposes. In that sense, they are not exclusive to home improvements or repairs. They also demand the house as collateral and the money granted can be used for other purposes that do not have to do precisely with housing.

5. Personal loan

Personal loans, like the previous ones, can also be used for multiple purposes, including paying for home improvements or repairs. They can be obtained through credit unions, banks or even online lenders, therefore, they are easier to process in the short term. To obtain them, the credit score is usually important, being easier for those with scores higher than 700, but it is not an exclusive requirement because some providers grant them to people with low scores.

Their advantage is that they have low interest rates and do not involve the use of the house as collateral, but they are usually counterproductive because they generate additional fees.