Here are the basic differences between both kinds of financing:
Home Improvement Loan Requirements
Home Improvement Loans generally require that a homeowner have a specific plan to address what improvements are needed, and that this plan be described in detail, from the types of improvements to the scale of the work to an estimate of how much the work will take to complete, including setup, contractor fees, etc. All of this generally needs to be described in as much detail as possible, and a step-by-step plan for how the improvements will be executed is also required. It also may make a difference whether the loan is classified as a home equity loan or a ?niche? loan. The latter may require the homeowner to provide even more detail.
Disbursements will be based upon an agreed-upon schedule, so the time frame and frequency of disbursements will largely depend on what kind of project the homeowner is undertaking. Steps to the application process include an assessment of your home?s equity. The amount will be determined by the home?s appraised value, minus the balance of the principal of your mortgage.
HELOC Requirements
Home Equity Lines of Credit are generally more open-ended, requiring less by way of specific information respecting timing, cost, etc.? The loan is based solely on the homeowner?s equity and ability to repay. The homeowner will request the amount of the home?s fair market value sans the first mortgage balance, and the homeowner is free to use the loan for any purpose they see fit. Since a HELOC is a line of credit, the homeowner will have a fixed amount that they can draw from, and interest will be charged on the balance.
Home Improvement Loan Considerations
Home improvement loans are based on an amortized payment schedule and are given, as we?ve seen, in fixed amounts. A major advantage to this type of loan consists in their ability to increase borrowing power. Since home improvement loans are entirely dedicating to improving a house?s fair market value, lenders can commission appraisals of the house ?as complete? (after all of the improvements have been completed). This can increase the borrowing ability of the homeowner, potentially in a substantial way.
Advantages to a Home Equity Line of Credit
HELOCs are flexible, and the line of credit format means that they can be available in emergency situations, or as problems or opportunities crop up. Since there are far fewer stipulations on use of the money, using it for debt consolidation and the like is fair game. However, the repayment period is potentially a long one if you don?t pay off the principal in full, and HELOCs tend to have a ?draw period? with a fixed end point.
The decision between Home Improvement Loans and HELOCs will be highly dependent upon your individual situation and whether you want flexibility or increased borrowing power. Both can place you at risk if not used wisely, but both can also be an opportunity to increase your home?s future market value.
Get the help you need in finding the right type of home loan from www.homeloanstoday.com. From purchasing a new home to refinancing an existing mortgage, Home Loans Today makes the process easy.
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Tags: Equity Line of Credit, HELOC, Home Equity Loan, Home Improvement Loan, Mortgage Refinancing
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