1 Personal Loans to Help Your Home

When you need financing for home improvements, you have various options available. The most obvious one – and also the worst – is to use your credit cards. These carry high interest rates, and the amounts you can get from your cards are rarely enough to cover the costs of a major project. So, it's better to apply for a traditional loan – whether a loan with bad credit, or a home equity one. The interest rates may be tax deductible – check with your accountant or with an independent consultant to see if this applies to your situation.

Personal Loans vs. Home Equity Loans

When you need financing for a remodeling or construction job, the two basic types of options are personal loans and home equity loans. It's usually a lot easier to obtain personal loans, as the prerequisites are not very strict, but the interest rates are also somewhat higher. If you want an unsecured loan – without any sort of collateral – the maximum amount you can expect to borrow is usually at around $15,000, and it will carry very high rates, since the lender has a lot of risks to cover.

With home equity loans, you use the part of your house that you've already paid for as collateral for a new loan. These are better options when you undertake an expensive project that will require a lot of money for the long term, since the interest rates are better. On the other hand, they also carry a lot of additional costs – fees for the appraisal of the house, for the evaluation of your application, and so on – so they're not always the best solution.

Improvements That Add Value to Your Home

Banks are more willing to grant loans for certain types of improvements that increase the house's market value. For example, adding an extra room usually increases the selling price of a house by an average 10%. If this is the type of project you want to undertake, make sure you specify that in your loan application, as it may speed things up, especially if the house itself is used as collateral.

Other things that add value are loft conversions, new parking spaces, and central heating. Anything that can improve the energy efficiency of the house, such as an additional layer of insulation, is a good investment. In addition, these improvements may reduce the heating bills in the following years. Since these are complex projects, most lenders will require proof that you work with a contractor. For smaller jobs, you won't have to justify the labor costs, and you may be able to do it yourself, and use the unsecured personal loans to pay just for the materials.

In certain cases, and especially when your credit score is not in a very good shape, banks may turn down applications for improvements that are regarded as luxuries, such as adding a swimming pool. This depends on your residential area – if you can prove that the market has a lot of potential and the value of the property will increase drastically, you stand a better chance of obtaining the credit.