If you plan to remodel or renovate your home there are a variety of different home improvement programs that you can apply for through both local and national lenders. The loans generally fall into two categories: Rehabilitation loans and improvement loans. Rehabilitation loans are for homes in disrepair that need major renovations. These loans are often written for amounts in excess of the home's current value. Improvement loans are used to remodel kitchens or add extensions that may or may not add significant value to a home and these loans cannot normally exceed the current value of the home.
1. Contact two or three local contractors and arrange for each one to visit your home and provide you with quotes on the home improvements you intend to make. Typically, you must use contractors if you intend to apply for a home improvement loan rather than complete the work yourself. If proposed costs exceed the amount you wish to spend, revise your plans and ask for quotes on the reduced project.
2. Contact the local office of the Department of Housing and Urban Development. HUD, through the Federal Housing Administration, insures 203(k) home rehab loans written through partner lenders. The 203(k) loan limits vary from county to county but your local HUD office can provide you with a list of partner banks and tell you about loan restrictions in your area. 203(k) loan amounts are based on the value of the home after the completion of the work, so if you plan major renovations, you can borrow an amount well in excess of the home's current value.
3. Go to the office of the local or state housing agency. Some states offer low cost loans or grants for people with limited income who live in home's in need of repair that are located in low income areas. Find out if you are eligible to apply for one of these loans or free grant money. Some local housing agencies do not require you to hire contractors unless you are planning major renovations.
4. Contact local lenders. Speak to lenders that offer 203(k) loans but also shop around because many banks have in-house home improvement loans that are ideally suited for people making minor repairs. Compare the terms available from the different lenders and choose a lender. Having selected a lender, agree a formal contract with a contractor and provide the lender with a copy of the contract and details of the proposed renovations.
5. Provide the lender with your last two years of W2s or if you are self employed, two years of personal and business tax returns. You should also provide the lender with two months of bank statements, the warranty deed and homeowner's insurance information. The lender orders an appraisal to ensure your house hold's sufficient value to begin the work. After you close on the loan, the lender releases funds to pay for each stage of the home improvements.
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