Christian Home Improvement Financing
Christian home improvement financing may be one of the few ways that it is smart to borrow money for anything other than a place of residence, particularly for those who are a bit on the fiscally challenged side of things. After all, even the United States government is now challenging and encouraging all citizens to start saving instead of buying unneeded or unnecessary items so easily put on plastic in the past. So if there is an accepted time to borrow money, particular kinds of home improvements may be a good reason to borrow money. But even if home improvements are a more acceptable reason to borrow, both the reason for the credit and what part of the house is being improved must be well thought out. A good place to start is to decide what home improvements are most likely to bring about a good return on the investment.
Let's start with an in ground swimming pool. The answer is no and don't ask again. See, that wasn't hard at all because of all the home improvement financing ideas someone might come up with, the pool thing is a real loser. A person quite easily might not get a dime out of the thousands of dollars that are needed to put an in ground pool in a back yard, especially in the Midwest and eastern half of the country. In fact, many people might avoid buying a house with a pool because of all the expense and service associated with having such a responsibility.
The two places where it can pay off in terms of resale value for the house are the kitchen and bathroom. The return on investment for a kitchen is about ninety percent in most cases and while the cost may be upwards of ten thousand dollars or more, having an updated kitchen makes a house much easier to sell. Home improvement financing for the kitchen might cover such items as tile flooring, new energy efficient appliances and new draw fronts. The bathroom is another high return on investment consideration, while just a little lower (85%) on investment return than a kitchen, a remodeled bathroom will appeal not only the current residents but also those who will be looking at it when it comes on the market. Double sinks, tile floors and new bath tubs and fixtures are a good choice when choosing what to tackle in the bathroom remodeling project. Other good investments with a little lower return might be adding a second bathroom, installing a fireplace, adding a deck or patio and replacing old doors and installing ceiling fans as well as replacing old furnaces and air conditioning units.
So what about home improvement financing? Of course it goes without saying that the best way for home improvement financing is paying for them with cash. But since seventy percent of all Americans live paycheck to paycheck, it is more likely that some sort of lending agreement will have to be struck with a lending institution or company to make any home improvement project possible. And since a bank has the lowest interest rates on average, a person wishing to remodel should start at his/her local banking institution. A bank will most likely want to provide a home equity loan for the customer, which means a certain percentage of the equity in someone's house will be used for collateral in the lending agreement. That percentage may be any amount, and each bank is different. Understand that even if a person is a regular customer, a credit score of at 640 and a debt to income ratio that is fairly low will also be required for the agreement to be sealed at a bank, but the advantage of a home equity loan is the fact that the interest on the lending agreement may be deductible at tax season time..
A credit union might also be a good place to seek out home improvement financing. A credit union is usually a little less stiff in the requirements for a loan to be approved and usually take customers' individual situation into account as well as a credit history, so there might be a better chance of securing a loan agreement at a credit union. But what happens if a credit score is fairly low and there are some late payments on the borrowing history of the customer? There is another alternative for home improvement financing that may be more costly, but make the dream of remodeling more viable. This option is a signature loan.
A signature loan is usually a lending agreement offered at one of the many local and national lending companies usually located in strip malls across the United States. These companies handle mid to lower averaged credit scores and debt to income ratios are somewhat less important. The reason for this is the fact that these companies are backed by investors that choose to take higher risks with more questionable borrowers on the promise of a much higher rate of return on their money due to inflated interest percentages on the lending agreements. Home improvement financing with a signature loan may reduce the positive return on a kitchen or bathroom remodel by as much as ten percent or more because of the higher interest rates paid on the lending agreement. Making a wise decision about how to pay for needed home improvements takes some time and sound judgment before taking the plunge. "And the disciples were astonished at his words. But Jesus answereth again and saith unto them, 'Children, how hard it is for them that trust in riches to enter into the kingdom of God!'" (Mark 10:24)
Christian Home Improvement LenderA home improvement lender markets a variety of products for homeowners who want to finance projects that will either maintain or increase the value of their properties. Perhaps the house needs certain repairs or upgraded plumbing or electrical work. The homeowner may want to upgrade an outdated kitchen or bathroom. Or perhaps a young couple wants to build an addition to accommodate a growing family. These are all legitimate reasons for seeking financing by applying for a loan through an appropriate financial institution. This may be a mortgage broker, a bank, a credit union, or even an online lending company. Many lenders encourage property owners to apply for these types of loans even if the funds will not be used for home improvement projects. Some borrowers use these kinds of loans to consolidate other types of debt, to make major purchases (such as a vehicle or boat), to invest, or for any other personal reason. Though there may be occasions when taking out a loan for these types of reasons is necessary, it usually is not a good idea because the borrower's home is collateral for the loan. If the money is not repaid, the home improvement lender might foreclose on the property and the borrower could lose the house.
Prospective borrowers are advised to do some homework before applying for a loan. A good first step before completing an application with a home improvement lender is to get a copy of one's credit report and FICO score. Federal law allows consumers to receive one free annual credit report from each of the three major credit reporting bureaus, namely, Equifax, Experian, and TranUnion. There will probably be a small fee for the FICO score, but it is worth paying for this information before applying for a loan. The prospective borrower can review the information on his credit file for accuracy. If there are mistakes, the borrower will need to have these corrected. If the FICO score is in the poor range, the consumer will want to take steps to improve it before completing an application. This is important because interest rates often depend on the applicant's creditworthiness. The higher the score, the lower the interest rate will probably be. Usually, the best interest rates and loan terms go to the applicants with higher scores. The home improvement lender is going to take a very close look at the applicant's credit report and FICO score before approving a loan. Knowing the information ahead of time, and fixing any glitches, will increase the likelihood of getting an approved loan.
Another major consideration is the amount of equity that the homeowner has in the property. The equity is calculated by subtracting the amount of money already owed on the property from the professionally appraised value of the property. For example, a family may owe $120,000 on a home that is valued at $200,000. They have $80,000 equity in this house. Instead of going to a home improvement lender, the family may refinance their first mortgage. By borrowing 80% or less of the appraised value, the applicant avoids paying PMI (private mortgage insurance). In this example, the family could borrow up to $160,000 (80% of $200,000). The first mortgage would be paid and the borrower would receive $40,000 cash less the closing costs. The benefit of refinancing is that the family only has one monthly payment. If the funds are used to make improvements and upgrades to the home, the value of the house may go up even higher than $200,000. That is why using equity for actual improvements to the house are the best use of the money. The Proverbs writer advises that: "He that trusteth in his riches shall fall; but the righteous shall flourish as a branch. He that troubleth his own house shall inherit the wind: and the fool shall be servant to the wise of heart" (Proverbs 11:28-29). To use one's residence as collateral for purchases that do not maintain or increase the value of the residence is an example of troubling one's home.
If a Christian borrower does not want to refinance a first mortgage to take out the equity, she may seek out a home improvement lender for a second mortgage or a home equity line of credit (HELOC). Let's continue with the above $200,000 property with the $80,000 of equity. The house will still be used as collateral, but the loan may be approved up to the $80,000 amount or even more. Because this is a separate loan, the borrower does not have to pay PMI. In most cases, the interest on the second loan or HELOC will be tax deductible no matter how the money was spent. Before signing the closing documents, the applicant should receive a good faith estimate from the home improvement lender. This document provides important information about the interest rate, the length of the loan, the number of points that need to be paid, the closing costs and fees, and the amount of the monthly payments. The proceeds of a second mortgage will be given to the borrower. A HELOC is a line of credit that the borrower can access as needed. Prospective borrowers should be sure they understand the terms of the loan. The interest rate may be variable, which means it can go up or go down depending upon the movement of the relevant index. It's also important to know if there are pre-payment penalties if the loan is paid off early. Most financial experts advise that applicants avoid loan products that include pre-payment penalties. By obtaining a good faith estimate from the home improvement lender, the applicant can compare the offered terms with those offered by the company's competitors.