Using a No Equity Home Improvement Loan to Start Remodeling
No-equity home improvement loans fund remodeling, repairing, and otherwise increasing the value of a home. They are offered to qualified borrowers by various lending institutions. Structural changes to 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, and requirements vary between them. 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; moreover, it limits the types of improvements that can be made with borrowed funds.
No Equity Home Improvement Loans
There is another type of loan available which called a No Equity Home Improvement Loan. This type of loan bases approval on credit scores and debt-to-income, rather than the value of the home. The amount of the loan is determined by the value of the home; however, lenders may offer funds up to only 25% of the home's market value.
While typically used for new construction, this type of loan may also be used for remodeling. 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.
Full documentation loans require proof of employment, income, debts and expenses. A stated income loan carries a higher interest rate than its counterpart, but it 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% of 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 type of loan simplifies the application process and allows borrowers up to $35,000. There are some exclusions and restrictions. 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 they are full documentation loans, 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 it is completed 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.