A Guide to Home Improvement Loans

Different people have different reasons for needing a home improvement loan. Sometimes people would like to renovate and fix up the home they’re living in when it starts getting run down. Other times the house has sustained damage from a storm or natural disaster, and the homeowners don’t have insurance coverage. And in some instances, extra money is needed along with a mortgage to purchase a house that is in poor condition and needs a lot of repair work to make it habitable.

Those who want to make some improvements to an existing home have a few different choices available to them. You can get a home improvement loan from HUD, the Department of Housing and Urban Development in the US. You need to apply for this kind of loan through an approved HUD agent. Then there are community based assistance programs like the Community Development Block Grant Program.

But for people looking to purchase a home that needs a lot of repair and renovation work done, there are fewer options available to help finance the needed improvements. This is because many lenders stipulate that the homeowner has to do the renovations before they can take out a loan. However, the repairs can’t be started until the home is purchased, so this leaves many people in a quandary.

The solution to the problem is to apply for a 203(k) loan, available through accredited HUD lenders. These kinds of loans are tailor made for those who are considering buying a house requiring lots of improvements but can’t afford to do the work without some financial help. The 203(k) loan requires the applicant to follow a series of steps that enable them to add the value of the required home improvements to the price of the house. The total cost of purchasing the house and making the needed improvements are all rolled into one loan. This means that the buyer isn’t completely stuck, but can buy the house and get going on the renovations immediately with the proceeds of the home improvement loan.

The first step to getting this type of loan is to put in an offer on a home that you would like to fix up. The offer to purchase must stipulate that the buyer will try to get a 203(k) home improvement loan to cover the cost of both the house and the renovations. Once the transaction is approved, the new homeowner will have to consult with the lender to develop a timeline for completion of the repairs to be performed. The deal is conditional on the buyer completing the necessary improvements as agreed upon with the lending agency or HUD.