Renovating your home can be an extremely rewarding experience. But it can also be one of the most stressful as well. One of the biggest factors to consider is how you’ll finance remodelling. If you don’t have cash saved, a renovation loan can be an option.
What is a home renovation loan?
If you’re looking to renovate your home and need additional funds, a home renovation loan can help make that happen. With a home renovation loan, you’ll be able to pay for the cost of your renovations in one lump sum. You can use the money to pay contractors’ fees, as well as any materials that go into your project. The best thing about a home renovation loan is that it can help you save time, by getting all the materials at once, and can cover upfront costs of labour.
You can get a renovation loan through your bank or lender of choice, and just like any other loan type you will need to provide documentation showing that you have sufficient funds available to meet the repayment requirements of the loan, as well as any other requirements outlined by the lender including: such as proof of employment and credit report.
Home renovation loans are flexible because they don’t require a large down payment or a long repayment period. They’re also less risky because they don’t require collateral such as land or property deeds.
Ways to finance home renovations
There are many different lenders and loan options you can choose from, which can be daunting. Here are some that can help finance your next renovation project.
Home equity loans
The equity in your house is the difference between the home’s current value and the amount owed on the mortgage. Home equity loans are a great way to get the work done on your home. It’s a type of mortgage that allows you to borrow against your equity. Assume your property is now worth $750k, and you still owe $450k on the mortgage, which means you own the remaining $400k – this is your equity.
Home equity loans are available through banks and lenders, and they generally have lower interest rates than other types of loans. You just need to prove that you have enough equity in your home for the lender to approve a loan for the project or renovation you want to do. You can use a home appraisal or financial statement from your lender as proof that you have enough equity in your home. If you don’t have enough equity in your home, consider other financing options.
Personal loans are a type of finance that allows you to borrow any amount from $2,001 up to $50,000. These loans are typically offered by banks, credit unions, or online personal loan lenders. Personal loans are typically taken by borrowers who need larger amounts of money that can be repaid over a longer period of time, usually between two and seven years. Aside from choosing your loan amount and payment term, you can also decide whether to take out a secured or unsecured loan.
Using credit cards is another way to pay for home renovations. They’re great because they can offer a variety of incentives, like cash back or rewards points, and they allow you to spread the cost out over time. Credit cards can also help you get more money back than you expect when making payments on your renovation. For example, if you put $10,000 in renovation costs on a credit card that earns a $2 rewards rate, you’ll get $200 back. Just make sure you pay your bill every month to avoid paying interest.
If you have money in your bank account, you can use your savings to finance home renovations. The benefit of using savings as part of a renovation project is that it reduces the overall cost compared to borrowing from lenders as you won’t need to pay any interest. Also, there is less risk in using your savings account because you’re not taking any debt.
A construction loan is also a great option if you are upgrading your house and if you prefer to receive funding in instalments rather than a lump sum payment from the lender. The amount you borrow remains set, but you can pay your bills at different phases of the restoration. You’ll need to set out a payment plan with your lender and stick to it.
Some lenders also offer construction loans that have an interest-only period in the beginning. This means that you will only be charged interest on what you borrow while the improvements are being completed. After the modifications are completed, you will be required to repay the borrowed funds plus interest.
A green loan is a personal loan designed for environmentally friendly and long-term home improvements. It can be used to buy a solar power system, a solar hot water system, or energy-saving equipment. It can also be used to install energy-efficient heating and/or cooling, insulation, and double glazing for windows. Green loans provide lower interest rates and more flexible repayment terms. However, there are restrictions on how the funds may be spent. Green additions or upgrades will be the extent of your remodelling.
Why renovate with an unsecured personal loan?
There are two types of personal loans that you can choose from: secured or unsecured loans. Secured personal loans are loans that are backed by collateral or secured against an eligible asset you own, such as your house or car. If you can’t pay your monthly fee, your collateral can be taken as payment. The most common type of renovation loan taken by customers is an unsecured personal loan. Below are some of the reasons to consider taking out an unsecured loan to renovate your home.
No collateral required
Unlike secured loans, unsecured loans won’t require you to provide collateral to get the money you need. This means that even if you don’t have a house or car to put up as collateral for the loan, you can still qualify for an unsecured personal loan.
Quick and easy to get
Paying off your loans on time will show excellent financial behaviour and will increase your credit score.
More flexible loan terms
The down payment on a home renovation can be expensive, and sometimes we’re not able to pay too much for it upfront. That’s why unsecured personal loans are so useful: they give you access to the funds you need.
What can I use a renovation loan for?
- Renovating Your Home. You can use renovation loans for everything from painting the walls to installing new air conditioning units or kitchen appliances. There are no questions about what kind of renovation is needed, as long as it’s safe and functional, and will improve your property value.
- Remodelling Your Kitchen. With a renovation loan, you can renovate your house and make it better.
- Adding New Bathrooms. You can also use a renovation loan when you’re renovating an existing bathroom and want to add new fixtures and finishes.
- Updating Existing Rooms. A renovation loan can also help you with things like painting the walls, installing new floors, or adding new furniture to existing rooms.
- Addressing Other Needs. Renovation loans are also great for covering unexpected costs like unexpected utility bills, repairs after a disaster, or even just putting money aside while you save up for something else.
- Improving Property Value. Renovation loans can also be used to improve the value of your property. By investing in your property, you can increase its value and sell it at a higher price.
How to apply for a renovation loan?
You can apply for an unsecured personal loan through Friendly Finance. The amount you can borrow would be more equivalent to a personal loan above $5,000. Our online loan application is hassle-free, and the entire process can be completed using your mobile phone or laptop. Filling out the application form will only take a few minutes since you just need to provide your personal information, employment history, and bank details.
Am I eligible for a loan?
The eligibility criteria between lenders differ. Most lenders will ask for details about your income, employment, current liabilities, and also debts. It may be difficult to get a renovation loan if you’re currently facing financial hardships. However, lenders may consider you for a secured personal loan even if you have bad credit. This is because there is collateral attached to it which the lender will collect as payment if repayments are not met.
Ready to make your renovation real?
Taking out a loan might seem. It’s very easy to apply online and there are plenty of lenders who can offer flexible loan terms. If you’re thinking about renovating your house, this is a good idea to try out.
Home renovation loans FAQs
As long as lenders see that you have good credit based on your credit report, good income, and you can pay the loan amount, then it’s not difficult.
Yes. Renovating your home will allow you to increase its value and sell it at a higher price when the time comes.
Certain renovations may not add value to your home. Such as those that may increase your energy bills or those that may reduce space in your home such as making additions in a room.
You will need to provide your details, employment history, and bank statements.
You can still look for other finance options for a home renovation even if you don’t have equity in your house such as using your savings account or taking out a personal loan.