Love your Home and Go for Home Improvement Loan
Who will not like comfortable home with better looks? It catches everyone attention and gives a sense of pride. It enhances the quality of living. For improvement project, you need capital. Right. And now the question is to explore the best possible options.
What is the Home Renovation/Home Improvement Loan?
Home improvement loans are loans that you can take if you wish to strengthen the investment you have made in buying a home. It is basically used for any sort of renovation, updates, and repairs on a property that has already been constructed. These loans can be taken as and when required and they are somewhat similar to home loans in terms and conditions. Apart from major renovation work in house, furniture, bathroom fittings, interiors, etc., can also be carried out using these funds.
What is the tenure for a home renovation loan?
Home loans can be taken for a period of up to 15 years or more depending on the requirements and can be paid as EMI’s. The maximum period of this loan can be changed depending on the lender’s policies.
What is the applicable interest rate on home improvement loan?
The interest rate for this loan lies between the range of 9.5 to 10.5% per year and the processing fee for these ranges from 0.5% to 1% of the total amount of loan.
Apart from getting immediate funds to make your house look beautiful, there are certain risks associated with these loans as all home improvement loans are not the same and come with different pros and cons. Here is an outlook of home improvement loans available in the market, tips to choose the best lender and to qualify for these loans, whether it is good to opt for a personal loan for home improvement or to go for home equity, benefits of home improvement loans.
What are the different types of home improvement/home renovation loan?
The type of home improvement loan will largely depend on your renovation requirements. If it is on a smaller scale, a personal loan for a short period will be the best option but for larger scale improvements, it’s better to go for a home equity loan.
A personal loan for home improvement is like any other unsecured personal loan used for various other purposes. It’s not necessarily be used for home improvement purposes and the interest rate on the loan is totally dependent on your creditworthiness. These loans generally have a fixed interest rate, and it is comparatively easy to schedule the EMI payments according to your earnings.
Home Equity Loans
A home equity loan is a kind of the second mortgage for a fixed amount of money that is tenable by your home. You can repay the loan with equal EMI’s over a fixed period of time, similar to your original mortgage. In case, if you are unable to repay the loan, your lender has rights to foreclose on your home.
What are some of the best ways for which a home improvement loan is taken?
- Roofing or Flooring
- Electrical Work
- Grills & Sliding Doors & Windows
- Parapet Wall & Boundary wall Underground or Overhead water tank
- Replacement of windows or doors
How to qualify for a home improvement loan?
First and foremost, you need to have equity in your home. Equity is nothing but the difference between the ‘worth’ of your home and what you owe on it. As equity of at least 20 % is desirable for most lenders before they can let you borrow money against your home.
Next, you need to have a good credit history and a great credit score. It does not mean that you won’t get your home improvement loan approved if you have poor credit. In this case, a higher interest rate will be levied while granting a home improvement loan for you.
Having a steady income is another important criterion for approval of your home improvement loan. The lender would like to be absolutely sure about your repayment capability before he decides to approve your loan.
Finally, the lenders would ask for estimates prepared by contractors for the renovation/improvement work of for your home. This will give the lenders a fair idea about how you plan to use their funds. It will also help them to gauge how much fund you actually require.
What is the eligibility criterion for availing home improvement loan?
Here, we bring forth common eligibility criteria for home improvement loans from lenders.
- You can apply as the owner or with a co-applicant
- Both salaried and self-employed people can apply for these loans
- The minimum age for this is 21 years, and the maximum period in case of salaried individuals for few banks can be up to 65 years. It is noteworthy the maximum age must not exceed the age of retirement.
- A company is also eligible to apply for the loan, subject to term it has not operated for a predefined minimum period.
- Again, applicants as companies should be in profits to apply for this position
- All the property owners are required to be co-applicant of the property
What are all documents required for applying for a home renovation loan?
- Duly filled in the application form with photographs
- Salary statements
- Bank statement for the last 6 months
- Form 16 & Income Tax Return document
- Property documents
- Quotation of the architect for the renovation of the home
- Valid address proof
- Identity proof like Voter ID, Aadhar card, Passport, Electricity or Phone Bill
- Government document in support of age proof
- In some cases, the insurance policy also and the sole beneficiary of the same.
Address Proof of the business entities may include
- Certificate of Shops & Establishment
- Certificate of Trade License
- SSI Registration Certification
- Certification of the VAT Registration
- Certificate of Factory Registration
- Export-Import Certificate
- Degree Certificate for Professionals
- Professional Qualification Certificate
- Certificate of SEBI registration
- And Registration No issued by ROC
Is there any tax benefit on home renovation loan?
There is a tax deduction under section 24 of the Income Tax Account. Only the interest is eligible for a tax deduction. The tax deduction can be maximum up to Rs 30,000 per annum.
How can we choose the best home improvement loan?
- It’s vital to choose a home improvement lender that matches your requirements perfectly.
- It is advisable to research various local lenders and discuss with your close ones who have recently taken funds for home improvement.
- Depending on your financial requirements and your capacity to borrow from existing equity, the lenders offering best deals may vary.
- Before applying for these loans, you should know your credit eligibility.
- Your credit score, loan-to-value ratio, and debt-to-income ratio are some of the vital factors in getting loan approval and grabbing for the best rates.
- Like all other loans, with home improvement loans also lenders prefer the ones with consistent and high credit score.
- Some lenders here may provide the loan with less credit score but the interest rates are on the higher side in these cases.
Benefits of Home Renovation Loans
Home loans taken for the sole purpose of refurbishing your house are counted in home improvement loan and offer a lot of benefits with easy EMI options that are quite manageable to repay. Some of them are:
- Many loan lenders provide options to select between fixed and floating interest rates so that you can choose the one that suits you best. This way you get a preference in the way the interest is calculated.
- You can apply for the home renovation loan online for most of the banks, thus skipping the procedures of running down to the bank.
- There are certain variations of how banks cover the renovation cost. Some may cover the entire amount and others might cover up to 90% of the price.
- The bank may issue the full loan amount in one go or installments according to the need.
- Some banks also proffer free credit cards to lure customers to improve the deal.
- Generally, very less amount of paperwork is needed to get home improvement loan approved.
- The banks tend to offer certain added advantages to the existing customers regarding lending the amount. New might get only 80% of the required amount while existing ones can enjoy up to 100% of the required amount.
- Borrowing money to finance your home improvement can be a much cheaper option than to finance through a credit card as most lenders offer attractive and competitive interests on home improvement loans.
- The home improvement loan provided you with an immediate way to attend to a home repair. Yes, you need to repay the money to your lenders, but it’s much better to address the repair urgently than to wait for the funds to arrive and to end up spending more on a ‘bigger damage’ later on.
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