How to Get a Low Interest Home Improvement Loan with Your Equity

Most people want to fix up their homes and do needed improvements after they have had their home for awhile, and the best way to finance those improvements is through a home improvement loan. As with any quest for a loan, you want to get the best possible interest rate so your payments are affordable. One way to do that is by using the equity that you have built up in your home.

Home Equity Facts

The equity that you have in your home is determined in several ways. First, you take the market value of the home and subtract how much money you still owe on your mortgage from that amount. After that, it depends on the lender, but most will lend up to about 80% of the equity that you have in your home through various types of home equity loans or lines of credit for your home improvement loan.

For instance, if your home is deemed as having a market value of $200,000 and you still owe $100,000 on your mortgage, then you have $100,000 equity in your home. If you have a good credit score then you will probably be able to find a lender that will give you up to 80 percent of that amount in a home equity mortgage at the prevailing interest rates at the time you apply.

Getting Low Rates

How can you make sure to keep your interest rates low for the home improvement loan? One main way is to wait until you have built up a large amount of equity in your home, usually at least 30% or more. This way the lender is more willing to give you a larger loan, plus they see that you have a record of paying the mortgage and are therefore less of a credit risk.

Plus, if you have an excellent credit score, that will also help. Therefore, it is best to check your credit rating and make sure there are no errors in your credit report. This should be done several months in advance of applying for the home improvement loan so you will have time to correct any problems that you discover.

Shop Around

Another way to keep your interest rates low is to shop around for a lender and not take the first one offered. You could also use a mortgage broker to help you find the best rates, but it is easy to do this on your own, as well.

Conclusion

The main thing to remember when trying to get the best interest rates on a home improvement loan is to wait until there is a worthwhile amount of equity in it to begin with. If you have only owned the house for a couple of years, then now is not the time to try to use your equity as it isn’t likely there is much there unless you made a very large down payment in the first place.

In addition, make sure your credit score and credit report are up to date and accurate as these make a huge difference in how much of an interest rate you get for your home improvement loan.