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Home Improvement Loan
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How Joan and Jack Got a Home Improvement Loan

This is the story of an average couple in the U.S.A. Joan and Jack have 2.5 kids (one on the way), a dog, three cats, an SUV, a sports car and a modest home. However, all was not perfect in their world. Joan wanted to add value to their home by building a sunroom and remodeling the kitchen. To help accomplish her goal, Joan consulted the real estate agent who sold them the home in the beginning. She asked if the broker thought adding a sunroom and remodeling the kitchen was a good idea in the current economic climate.

Is Home Improvement Loan a Wise Choice?

The agent told Joan that kitchen and bath remodels almost always add value to a home. The sunroom would add very little to the market value of the home, however, since most other homes in this particular neighborhood did not have sunrooms. Joan felt that the sunroom would give her family immense pleasure and she and Jack decided it was a worthy investment. Joan learned from the real estate agent that her neighborhood was not severely affected by foreclosures and declining home values as was the case with many places in the United States. Getting a home improvement loan for a home in an area of declining home values might be a bad idea. Joan and Jack came to the conclusion that a home improvement loan was the right choice for their unique situation.

Options for a Home Improvement Loan

Joan made a list of the options available to get her projects underway. They could: tap into savings, borrow from a family member, look for FHA-backed loans, get a loan from big banks, local banks or online banks, apply to state and local programs (such as MNHousing.gov's Fix Up Fund), get a home equity account, charge it on credit cards, or apply for a loan under the Housing and Urban Development (HUD) 203K Program. They could also refinance their home to cash out equity, and then use the equity to pay for the remodel and addition. Of these, Joan knew that a home equity account (or second mortgage) was a proven tax-deductible way to improve their home and increase its value.

Choosing a Home Improvement Loan

Joan decided to call their financial advisor to ask for advice. After considering all of the options and comparing terms, lending fees and interest rates, Joan and Jack decided to apply for an FHA-insured loan through their local bank.

What's Required?

Joan and Jack discovered that the lender required the following items to make the loan: credit check, proof of income and an itemization of the estimated costs for home improvements (such as building materials, labor costs and a contingency sum for unforeseen charges).

Summary

Every situation is different. Joan and Jack in our story above had excellent credit ratings, secure jobs and an established relationship with their local banker. This made their decision the "right" choice for them. Their home increased in value and the couple managed to get a low interest loan they could easily afford. You may find the unique solution for your home improvement needs to be much different. Look into all the available options before signing on the dotted line so your story will have a happy ending too.

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