How To Finance Your Home Repairs or Renovations with No Equity

Your new house may bring a new address and new neighbors, but it might also introduce you to new challenges. A broken boiler in the winter, a busted washing machine, a fridge on the fritz, or a leaky roof could welcome you home before your housewarming party is even planned. Without any equity in your new home, how can you pay for big projects that may not add value to your house?

So, What Exactly Is Equity?

Equity in your home is the amount of real dollars you have paid towards the entire value of the house. If you bought your house for $200,000 and paid a $5,000 down payment, you would have $5,000 equity in your home. In the same scenario, if you have made 12 months of mortgage principal payments at $1,000, your equity will be close to $17,000 ($5,000 + $12,000).

Home Improvement Loan Options with No Equity

Most home equity loans require that you have equity in your home to offset the loan’s security. Loans that do not require equity often have restrictions and terms that limit the type of repair you want to make and demand that you meet certain levels of qualification. In both cases, these loans often require bank approval that can take time to earn.

While these types of loan are great for homeowners who have settled in to their mortgage loan payments, if you need home improvement financing as soon as possible, you may prefer to use personal loans to get your home improvements done.

Federal Loans with No Equity or Low Equity

Department of Housing and Urban Development loans

HUD provides to basic loan types for homeowners:

  • FHA Title 1 Loan. The secured version of this loan provides up to $25,000 for single-family homes, with an option for unsecured loans up to $7,500. These loans must go towards work that will make your home more livable or functional — meaning you can’t spend this money on luxury items (such as pools or additional rooms).

  • FHA Limited 203k Loan. If your home renovation can be completed in six months — and you don’t have to move out of the home for more than fifteen days for the work to be completed — an FHA Limited 203k loan may be your best option. It allows for loans up to $35,000 for work that is sufficiently estimated and budgeted and the structure of the loan rolls into your existing mortgage loan.

Fannie Mae Homestyle Renovation loans

Fannie Mae provides renovation loans that do not require equity:

  • Fannie Mae Homestyle Renovation loan. Fannie Mae provides renovation loans that are not limited as the FHA Title 1 and 203k loans, however, they are more like traditional loans in that they take credit score and debt-to-income ratios into account to calculate the terms and interest rates, so these factors can add significantly to the cost of the loan.

Personal Loans Offer Fast Financing for Home Repairs and Renovations

If you don’t have the time to go through the loan process, personal loans can offer a quick solution to renovate or repair your home. With quick approval, you can get the money you need in a matter of days, instead of waiting for banks or government offices to approve your loan and to approve your intended improvement. Additionally, your application for a personal loan that finances your home repair can be performed online, meaning you won’t have to travel to gain loan approval.

Installment Loans Let You Add Any Improvement to Your Home

Many of the federal loans available to homeowners with limited equity restrict the type of renovation you can make on your home, but personal loans let you decide what type of home improvement adds value to your home. Often, this type of flexibility — combined with the faster approval process — makes personal loans a key component of adding new value to your home.

Home Loan Repairs with Bad Credit

Bad credit can often eliminate the ability to repair your home with a credit card or home improvement store financing — which are often provided as options for emergency repairs. Advance America’s team will work with borrowers that have poor credit to find terms that meet their needs: essential for the leaky roof or broken stove that needs to be fixed today.

Sources:

https://www.hud.gov/program_offices/housing/sfh/title/ti_abou

https://www.hud.gov/program_offices/housing/sfh/203k

https://www.occ.gov/publications/publications-by-type/other-publications-reports/cdi-newsletter/single-family-february-2018/article-7-fannie-mae.html

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