How To Get a Home Repair Loan 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. Home improvement loans with no equity may enable you to pay for big projects that might be necessary while not adding value to your house. Let’s dive deeper into how no equity home repair loans work and how to use them.

What is home equity?

Equity in your home is the amount of real dollars you have invested in the entire value of the house. If your house is worth $200,000 and you have a mortgage for $195,000 , you would have $5,000 equity in your home. In the same scenario, if you have made 12 months of mortgage payments at $1,000 of each paying down the balance of your mortgage (remember, a portion of your mortgage payment goes to interest and sometimes other amounts escrowed by your lender), your equity should be close to $17,000 ($5,000 + $12,000).

How do home repair loans work?

Home repair loans are a type of personal loan that can be used to finance home repairs, such as fixing the foundation or replacing a leaky roof. Then, the borrower will repay the loan over time. Home repair loans can be a great way to make necessary improvements to your home without having to worry about coming up with the funding yourself.

How to use a no-equity home repair loan

A no-equity home repair loan can be used for a variety of purposes, from making small repairs to financing major renovations. This can be a great option if you don't have equity to use as collateral for a traditional loan, or if you don't want to take on the added risk of borrowing against your home.

Types of home repair loans if you have no equity

Most home equity loans require that you have equity in your home to secure the repayment of the new loan. Oftentimes, loans that do not require equity have other qualifications you need to meet, in addition to restrictions and terms that may limit the type of repair you choose to make.

In both cases, these home repair loans often require bank approval that can take time. 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 a personal loan to get your home improvements done if you need home repair financing as soon as possible.

Federal Loans with no or low equity

The U.S. Department of Housing and Urban Development(HUD) offers two 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. An FHA Title 1 loan must go towards work that will make your home more livable or functional — meaning you can’t spend this money on luxury items like a pool or an additional room.

  • FHA Limited 203k Loan. If you can complete your home renovation in six months and don’t have to move out 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 sufficiently estimated and budgeted work, and the loan's structure rolls into your existing mortgage loan.

Fannie Mae HomeStyle Renovation loans

  • Fannie Mae HomeStyle Renovation loan. Fannie Mae provides a renovation loan that is not as limiting 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 repair projects

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 fast 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 intended renovation. You can complete an online application for a personal loan to finance your home repair, meaning you won't have to commute for loan approval.

Installment loans for home repairs

Many federal loans available to homeowners with little equity have renovation restrictions. However, with an installment loan, you can decide what type of home improvement will add value. This flexibility, combined with the faster approval process, can make an installment loan key to adding more value to your home.

Which home repair loan is right for me?

Now that we've gone over different types of no- or low-equity home improvement loans, you may be trying to decide which one is right for your needs. An FHA Title 1 or Limited 203K loan may be a good option if you have bad credit or are self-employed. And a Fannie Mae renovation loan may be a great way for people with good credit and a steady income to finance their projects if they plan on doing major renovations.

If you need funds for a home repair right away, consider getting a personal loan. And if you want the flexibility of funding almost any home improvement project, an installment loan may be right for you. Whatever route you decide to take, doing your research ahead of time will ensure that you get a great deal on your no equity home improvement loan.

How to boost your home equity

People are always looking for ways to increase the value of their home. Whether you plan on selling in the near future, it's always nice to know that your home is worth more than you paid for it. Here are several effective methods that can increase your home's equity:

Pay your mortgage down faster

One way to boost your home equity is to pay down your mortgage faster than required. While you're typically only required to make monthly mortgage payments, making additional payments can help reduce the principal balance of your loan and help you build equity faster. For example, if you have a 30-year mortgage, consider making bi-weekly payments. While this will result in higher monthly payments, you'll ultimately pay less interest over the life of the loan and will build equity in your home faster.

Refinance to a mortgage with a shorter loan term

If you want to significantly increase your equity, you may consider refinancing to a mortgage with a shorter loan term. For example, if you currently have a 30-year mortgage, refinancing to a 15 or 20-year mortgage can help you build equity – though your monthly payments will be higher. If you can successfully pay off your mortgage sooner than expected, your saved monthly payments can go towards building even more equity!

An additional bonus with refinancing to a shorter term is that you could end up paying substantially less interest over the life of the loan.

Make home improvements

Investing in renovations or other home improvements could also increase its appraised value — and, subsequently, your home equity. While there's no guarantee that any particular improvement will add value to your home, some projects tend to have a higher return on investment (ROI) than others.

Even small projects like painting, landscaping, or replacing old appliances may make a difference. Not only can these improvements make your home more enjoyable to live in, but they may also increase its resale value down the road should you choose to sell. If you're considering making home improvements solely to boost equity, choosing projects that are likely to give you the biggest bang for your buck is essential.

Get a home repair loan with bad credit

Bad credit can often eliminate the option to repair your home with a credit card or home improvement store financing — which homeowners can generally use as options for emergency repairs. So, you may require no equity home improvement loans for bad credit. Advance America’s team will work with borrowers with poor credit to find terms that meet their needs: essential for the leaky roof or broken stove that requires immediate repair.

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