Using a No Equity Home Improvement Loan to Start Remodeling

Offered to qualified borrowers by various lending institutions, a no equity home improvement loan is intended for use in remodeling, repairing and otherwise increasing the value of a home. Structural changes such as additions, repairing or replacing roofing or flooring and renovating existing features of the home are made possible with these funds. Additionally, cosmetic changes may be made, such as painting, landscaping, siding and even installing new wallpaper.

FHA Title 1 Home Improvement Loans

There are several types of no equity home improvement loans available, and requirements vary between the different types. The Federal Housing Administration, or FHA, offers home improvement loans to homeowners even if they have poor credit and no home equity. The FHA Title 1 Home Improvement Loan offers funds up to $25,000 with fixed interest rates. The FHA requires a licensed contractor to perform all work, however, and limits the types of improvements that can be made with borrowed funds.

No Equity Home Improvement Loans

There is another type of loan available, called a No Equity Home Improvement Loan, which bases approval on credit scores and debt-to-income rather than on the value of the home. The amount of the loan is determined by the value of the home, however, and lenders may offer funds up to 25 percent of the home’s market value.

Construction Loans

While typically used for new construction, this type of loan may be used in remodeling, as well. Especially useful if the home requires extensive remodeling, this loan can be used for a variety of improvements. Unlike other types of no equity home improvement loans, the amount of funds available depends on the projected value of the home after improvements are completed, rather than on the current value. T

wo types of construction loans are available: full documentation loans and stated income loans. Full documentation loans require proof of job stability, income, debts and expenses. A stated income loan carries a higher interest rate than its counterpart, but eliminates much of the paperwork involved in a full documentation loan. Only borrowers with excellent credit scores will qualify for a stated income construction loan. Funds up to 100 percent of the loan to cost ratio may be available through a construction loan. No equity home improvement loans may be obtained through local banks and mortgage companies alike.

FHA Streamline-K Loan

Intended for critical repairs or time-sensitive remodeling, this loan simplifies the application process and allows borrowers up to $35,000. There are some exclusions and restrictions, however. Funds may be used to make repairs and changes such as remodeling kitchens and bathrooms, finishing basements, and providing handicap access to the home. Although these are full documentation loans, as described previously, they are not based on credit scores. Homeowners with suitable job histories who have less than perfect credit may be able to borrow the funds needed to repair and remodel their home, thereby increasing its value. Unlike the FHA Title 1 Home Improvement Loan, homeowners are permitted to perform work themselves if done in a professional manner. For loans under $15,000 lenders are not required to perform final inspections of completed work. This type of no equity home improvement loan is available with either a fixed or variable interest rate.