Borrowing Money for Home Renovations
We spend a lot of time in our homes, so it’s only natural that we want to make them as lovely as possible. Whether that’s building a new deck or redoing the kitchen, home renovations can come with a pretty high price tag. Rather than waiting around in the hopes of saving enough cash, those eager to make changes often benefit from taking out a home renovation loan.
What is a home renovation loan?
When someone borrows a sum of money to repair or renovate their house, this is called a home renovation loan. They can borrow this money from an online lender, bank, or credit union, on the condition that they’ll pay it back in instalments over an agreed period. This means that homeowners can benefit sooner from the renovations, even if they don’t have the cash upfront.
When is borrowing money for home renovations a good idea?
Generally, there are three main reasons why people choose to borrow money to renovate their home.
1. To increase the value of their property
If someone is planning on selling their house in the future, they may decide to take out a home renovation loan to repair or build something that adds value to their property. Such projects may include replacing their garage door, adding a wooden deck, remodelling parts of the kitchen or replacing their sliding door. Borrowing the money now, rather than waiting to save up, means they can benefit from the renovation sooner.
2. To reduce their long-term expenses
People can find it worthwhile to take out money to renovate their house when the project is going to help save money in the long run. Someone may decide to install double glazing windows for example, to reduce heating costs in the future. Another example could be installing solar panels to save on electricity.
3. To enhance the safety of their home
It’s vital that everyone feels safe and comfortable in their homes. From needing to install a new fence, fix the hole in the roof or purchase an alarm system, people often don’t want to have to wait to make these necessary changes. Instead of having to slowly save up the required funds, people can get cash quickly through a home renovation loan.
How do I apply for a home renovation loan?
When a person applies to borrow money to renovate their home, they’ll need to undergo the same process as they would for any other type of personal loan. Before the lender can consider lending someone the necessary funds, they’ll have to complete an application form.
The information required on this form may vary depending on the lender, but typically borrowers will need to provide details surrounding the following.
What they’re renovating
Generally, the lender will need to know a brief overview of the renovation project. Some lenders may not need too many details, while others may require proof of the renovation once it has been completed. Such evidence could include an invoice sent to the contractor.
How much money they need to borrow
As the amount being borrowed needs to be agreed upon at the start, people usually benefit from having a good idea of how much their project will cost before they begin. This amount will need to be stated on their application form.
Current financial commitments
Borrowers may need to provide information such as bank statements and payslips to allow the lender to evaluate if they think the loan can be repaid. If their expenses are much higher than their income, the lender may not accept the application due to it being too high risk.
How long it will take them to repay the loan
The applicant will need to state how frequently they’ll be able to make repayments. They’ll typically get to decide between either paying instalments weekly, fortnightly or monthly. This information is needed to structure the loan.
Proof of identity
The borrower will likely need to give evidence such as a driver’s license and proof of address to confirm their identity. Some lenders may require multiple forms of identification. It’s illegal to take out a loan under someone else’s name (although you can have someone act as a guarantor).
Provide information about their assets
An asset is an item that someone owns that is of considerable value, such as a car, boat or piece of real estate. If the home renovation loan is secured, this means that the lender will need to know which asset can be used as security. This security means that in the instance that the borrower can’t repay the loan, the lender can take ownership of this specified asset and sell it to get back the money owed.
Tips for renovating your home on a budget
Before doing any renovations on the house, people typically find it’s best to plan out the entire project. Doing so will give them a clear idea of how much money they’re going to need to make the desired changes. Some borrowers may decide to add a 10% buffer to the total in case any unplanned project costs arise. Having this buffer means that even if the renovation goes slightly over the estimated cost, they’ll still be able to pay for it without having to take out an additional loan.
When completing the renovation, people will often benefit from sticking to their budget. By not following their initial plan closely, it may end up costing them a lot more than the money that they’ve borrowed.
Consult the professionals
Those who are renovating before selling often find it useful to have a real estate agent look over their plans. Some repairs and additions can seem like they’ll be a good investment, but this isn’t always the case. Rather than rushing to start a project, people normally benefit from having an expert check and offer advice. Talking to multiple builders may also bring to light certain issues you may not have foreseen.
Talk to your insurance provider
If the borrower is insured, renovations may need to be communicated to the insurance company as it may alter the amount of house insurance. Each insurance provider may have varying requirements so people typically will need to call them or review their policy document. Likewise, renovations that involve building may require consent from the local council.
Pay off your loan quickly
After the renovation is finished, most people benefit from paying off their debt as fast as possible. Before doing so, it is essential to check the lender’s agreements as early payment fees may apply. At QuickCash, there are no charges for early repayment, so you’ll save money on interest by paying off your loan quickly.
To help you speed up the process of becoming debt-free, read our article on “How to Pay Off a Personal Loan Fast“.
If you have any further questions about home renovation loans, don’t hesitate to call us on 0800 784 252 or apply online now.
Disclaimer: This article is intended to provide general information only. It does not take into account your financial needs or personal circumstances. It is not intended to be viewed as investment or financial advice. Should you require financial advice you should always speak to an Authorised Financial Adviser.