Home Improvement Loan Unsecured
If you’re a new homeowner who hasn’t built up much equity in your home yet, you are probably not going to be eligible for any home equity credit lines. But if you have a major renovation to do on your home, the money will have to come from somewhere. In this situation, some people obtain a home improvement loan unsecured. Unsecured home improvement loans are personal loans; you don’t need to have any equity in your home to obtain them. Unfortunately, the interest rates are generally not as good as a home equity loan interest rate would be. Usually, however, they are better than your typical credit card interest rate, so be sure to compare interest rates, and if the home improvement loan unsecured has a lower interest rate than your credit card, it is a better choice.
However, be careful before you take out a home improvement loan unsecured. If you haven’t built up equity in your home yet, you could be in a very vulnerable position if you get deep into debt, particularly if you carry a lot of credit card debt or student loan debt. Ask yourself if you really need to make these home improvements, or if there’s a cheaper way to do it without taking out a loan. It might be better to just live with your outdated kitchen for a while and save up money for it—set some money aside every month until you have enough to do what you want.
Don’t forget that for repairs resulting from problems like earthquakes, falling trees, or flooded basements may be covered by your homeowner’s insurance (although your rates may go up) or even by the government, depending on the situation.
You never know when another kind of catastrophe might strike and you might lose your job, so getting yourself into a position where you owe more money is a bad idea. You might lose your house entirely, including all the hard work you did remodeling—the same remodeling that you took out the home improvement loan unsecured for.
The one instance when it might be a good idea to take out a home improvement loan unsecured is if the housing market is highly competitive in your area, and your home has appreciated substantially even though you haven’t paid off much of the mortgage yet. If you are in this situation and planning to sell your house, then it might be a good idea to take out a home improvement loan unsecured, as the loan will be short-term—you’ll be able to pay it back when you sell the house. Just be absolutely sure that the cost of the renovation won’t eat into your profit too much—make sure that you’ll be able to sell it for enough money to pay off the home improvement loan unsecured. Sometimes work costs more than the initial estimate, too, so be sure you allow for more than you need. Research the housing market carefully and be honest about your home’s major flaws—be as well-educated as you can about the money it can fetch on the market in your area. Compare your house to similar houses that have sold recently, and note how long it took the houses to sell. If houses stay on the market for less than a week or two, that’s a good sign that you’re in a highly competitive market.