Home improvement loans are disbursed pursuing a repair work such as structural repairs, electrical wiring, plumbing, waterproofing, and painting or for remodeling the house with additional rooms or change of design. The loan amount depends on the type of repair or renovation and cost of work.
Different types of home improvement loans available
These loans can be either secured or unsecured. Unsecured loans are those that are disbursed on the basis of credit rating of the borrower. Whereas secured loans can be obtained by providing some kind of guarantee that the amount will be repaid. Usually, a collateral security is submitted for obtaining the loan. These are given directly to the contractor or in partly payments depending on the progress of the work. Different types of home improvement loans include–first mortgage and second mortgage loans, refinancing of loans, grants, and unsecured loans.
First mortgage loan is in the form of an extension on the existing loan. By discussing the terms and conditions with the lender, it is possible to get an extension on the existing loan.
Second mortgage loans can be obtained by placing the same assets as collateral. Home equity loans and home equity line of credit are the most common type of second mortgage loans. Home equity loan is a loan on the equity value of the borrower’s property. This loan is given in lump sum, while the line of credit loan is a revolving credit loan, which is given in partial amount or lump sum and is often the discretion of the borrower.
Refinancing an existing loan is yet another option to arrange money for home improvements. By refinancing the mortgage to a shorter term will lower the interest rate on loan.
Unsecured loans are disbursed by banks or by private lenders on the basis of the credit rating of the borrower. Government grants are available for low-income families to repair or renovate their houses.
Basic documents for getting loan
The basic documents required for home improvement loan are title deeds, encumbrance certificate, property tax receipts, sanction and license to carry out repair work, estimated cost of the plan, and salary certificate.
Repayment of loan
There are several repayment options such as payment towards principal amount and the interest amount, interest-only payment and full repayment of the core after a fixed time period. The repayment can be completed within 6 months time to more than 10 years.