The economy may be taking a hit, but that's no reason the home improvement project you've been thinking about has to. Contrary to what you may have been led to believe; loans are available! The approval process is more comprehensive than in the recent past and there are fewer lenders in the market. But, with interest rates still at historic lows, this may be the best time to finance that project for a new deck, bathroom, kitchen, or update your family room.



Today lenders are looking at borrowers more closely. As a borrower you will be required to provide proof of income and proof that you can repay the loan. This is accomplished by providing tax returns, pay check stubs and bank/brokerage statements. You will also need to have a good credit score. There is nothing unusual about this more comprehensive qualifying process. This is the process lenders used before the days of sub-prime loans and availability of cheap money.

Now that you know loans are available, how do you determine the best way to finance the project? There are two avenues you can take. Consider either a secured loan, or an unsecured loan.

Now, how do they differ and how do they work? A secured loan uses your house as collateral. The loan is based on the assumption that the home improvement project will raise the value of your home. It's a win-win for you and the lender.

There are basically three types of secured loans you should consider: a Home Equity Line of Credit (HELOC), a Home Equity Loan or a Construction Loan.

For both a HELOC and a Home Equity Loan the lender will assess the value of your home/property and determine any outstanding debts against the property. In most cases this is the balance of your current mortgage. Once the value is determined, the lender may loan up to 80% of that value less your current mortgage. As an example: your home is worth $800,000. Your mortgage current balance is $400,000. Therefore, the lender may give you a loan in the amount of $240,000, or 80% of the value of your home, less your current mortgage.

A HELCO is essentially like a checking account or credit card. You draw down on that amount (like a checking account) as needed, and make payments on what you've withdrawn, plus interest. A Home Equity Loan is essentially the same as the line of credit, but instead of drawing down as needed, you receive the entire loan amount when it is approved and funded.

There is a third type of secured loan called a Construction Loan. This is different than the home equity loans in that this loan is guaranteed by the value of the home after the construction is finished. You'll need to give the lender a full set of blueprints/plans along with all pertinent specifications. This is an excellent way to fund large renovations and additions.

This brings us to unsecured loans. These act as promissory notes which you personally guarantee. For small improvements, like new gutters or appliances, you can consider using your credit cards. However, this type of credit can have rather high interest rates, so you should pay them off as quickly as possible. But for larger projects there is another type of unsecured loan available. Lenders offering these types of unsecured loans often use an internet based application process; decisions are fast - usually within a few hours and loan amounts are up to $100,000. Repayment can often be stretched out to 84 months, and current interest rates are about 8%.

Big or small, with interest rates at their lowest in years, now is a great time to get your home improvement project started. And if you need some help in finding the right financing source, we'll be happy to refer you to someone who can meet your needs.