Home remodel loans provide funding to renovate an existing property. Home improvement loans can be used for both simple upgrades and large-scale remodels. Homeowners will want to look for incentives on loans to ensure that the cost of the remodel adds substantial value to the property.
What are home remodel loans?
Home remodel loans are not the same as home equity loans. With the former, a borrower will ask for funding that covers the post-renovation value, according to the team from Construction Loan Center. In comparison, home equity loans are calculated by any existing equity built up in the home. A major advantage of remodeling loans is that unlike home equity loans, payments are not made during the construction phase. Furthermore, home equity loans may not cover major remodel jobs that require extensive construction work.
Home construction loan incentives
When comparing lenders, borrowers should review incentives offered through the companies. One type of incentive is home construction loans with Title I status. The Department of Housing and Urban Development or HUD underwrites these loans. The federal government does not provide the loan directly, but will guarantee it in the case of default. Loan amounts are modest and typically capped at $25, 000.
Tax exemptions are another incentive for taking out a home remodel loan. These programs grant exemption status to homeowners remodeling their properties. Once the remodel is complete, property tax payments resume.
Home improvement programs are an additional type of incentive open to borrowers. Local and county government agencies sponsor home improvement loans with subsidized interest. These programs are most often offered for rehabilitation construction projects. Gross income limits for the borrower may be applicable. Additionally, luxury upgrades such as pools and decks may not be eligible.
Home improvement grants are another potential way to make remodel loans affordable. Grants are usually money awarded in addition to loans and have specific requirements. For instance, the federal government has a grant program for seniors over the age of 62 who need monies to make their homes safe and accessible.
Borrowers have additional options to save on home remodel loans. The Construction Loan Center recommends secured loans with low, fixed interest rates. These types of loans keep monthly payments low and have more protections in place in case of non-payments.