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Home Improvement Loans - Information and Advice

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Home improvement loans can be used for a number of home improvement projects such as kitchen or bath remodeling, adding an addition, converting an attic or bonus room to living space, etc. Many types of home improvement loans are tax deductible.

In this article, we'll focus on these home improvement loans:

Home equity line of credit
Home equity loans
Cash-out refinancing

Home improvement loan: Home equity line of credit

A home improvement loan using a home equity line of credit is actually a form of revolving credit in which your home is used as collateral.

A home equity line of credit provides you with a credit line that you can borrow against at any time within a set time limit and up to a maximum amount. Home equity lines of credit often feature a variable interest rate and a draw period.

The draw period is the time frame during which you are allowed to use the credit available on your home equity line. When you borrow funds from your home equity line of credit, it is referred to as a draw.

The minimum initial draw amount on a home equity line of credit is usually $10,000 to $20,000. The minimum amount for subsequent draws is often $500 or more.

Within six to eight weeks of your loan closing you will receive a package that contains both payment information and checks that will allow you to access your line of credit.

In most cases the interest on your home equity line of credit is deductible as long as your home equity debt is $100,000 or less and the total debt on your home is less than or equal to your home's appraised value. Any mortgage debt above your home's appraised value may not be tax deductible.

These features make it a perfect fit for a home improvement loan.

Click here for more information on setting up a line of credit.

Home improvement loan: Home equity loan

A home equity loan enables you to borrow money in a lump sum against the equity (the value of your home minus what you owe) you have built up in your home. This loan is subordinate to the existing first mortgage.

Buyers commonly use a second mortgage to keep their first mortgage in the conforming range (which keeps the rate lower) and to avoid PMI. Home equity loans are often used to pay for major renovations to your home.

A home equity loan is usually a fixed rate for a set period of time. A home equity line of credit is usually a variable rate for a varied period of time.

While both are considered second mortgages, the advantage of a home equity loan is that all funds will be paid to you at closing.

A home equity loan has a fixed monthly payment while a line of credit usually has just a minimum monthly payment of $100 and a variable amount of time to pay off the initial draw.

Like the line of credit, a home equity loan is tax deductible for loan amounts up to or equaling 100% of your home's value.

In most cases, home equity loans or lines of credit do not require a full appraisal. In fact, for most loan amounts of $250,000 or less, the appraisal process can be completed electronically.

Because you don't need a formal appraisal, home equity loans and lines of credit can be arranged to close quickly, often in 10 days or less.

The advantage to using home equity loans for home improvement loans is this method gives you the money you need upfront, with a fixed monthly payment schedule.

Click here for more information on home equity loans.

Home improvement Loans: Cash-out refinancing

The third type of major home improvement loan involves refinancing your mortgage to draw cash out. This type of loan is usually referred to as cash-out refinancing.

Unlike the two types of home equity loans, cash-out refinancing involves a formal appraisal since it is an entirely new mortgage. Usually, these new loans are for 80% of appraised value and you cash out some of the home equity you've built up over the years.

This home improvement loan has the advantage of not needing to be repaid since you've cashed out that home equity.

As with any type of new mortgage, you'll need to go through the application process even though you already live there.

With E-Loan, the leading online mortgage lender, you can get approved in five minutes. You won't need all the reams of documentation you need elsewhere. Plus, they come to you with the paperwork.

Now that's customer service!

Click here for more information on using cash-out refinancing for home improvement loans.

Home Equity Loan Tax Advantages - Information about the advantages of equity loans versus refinancing.

Equity Loans - Are They For You? - A home equity loan or line of credit has lower borrowing costs than refinancing.

Equity Line Of Credit - Discover the best ways to save big with a home equity line of creditt.

Cash Out Refinance Tips - Refinance and borrow more than 100% of your home's value. Resources for refinancing and line of credit borrowing.

Bad Credit Home Loans - Information on types of bad credit loans - Advice on how to get the best rates regardless of your credit rating.

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Online Mortgage Broker - How to use an online broker to save big on your next loan - Advice on what works and what to avoid.