When it comes to the house you live in, you want the best home that truly reflects your taste and style. Buying a house is one thing, but maintaining it to always remain trendy yet comfortable is a different story altogether. Often home improvements demand a major chunk out of your saved corpus, leaving you rattled. It is not uncommon, to find people postposing home improvements for years. But not anymore. You can now opt for a home improvement loan from a reputable bank to upscale your dream home.
Understanding the home improvement loan
A home improvement loan is similar to a Home Loan. Where on the one hand a Home Loan helps you buy a new home, a home improvement loan helps you renovate an existing one. These loans are low cost and flexible loans that are relatively easy to get.
While repairing,renovating, or improving a house people often struggle to maintain a balance between what they want and what their budget permits. However, if you Avail a Home Improvement Loan you can ease a bit and spend on your house with a more relaxed financial margin.
Home improvement loans are given to clients who want to make significant structural changes to their houses. Structural changes include – plastering the internal and external walls, flooring, tiling, roof repairs, and painting of the walls.
Home improvement loans can be offered to existing as well as new customers. However, existing customers always get a higher loan as compared to new ones.
Types of home improvement loans
Home improvement loans are of two types – Secured and Unsecured.
- Secured Home Improvement Loan: In this loan the customer has to give his/her home as a guarantee against the loan taken. That is why this loan is also called the second mortgage loan. A secured loan always fetches you higher loan amount made available at the fixed interest rate. It comes with a 10-15 years payback period and its interest is tax-deductible. For a secured loan the interest rate depends upon factors such as the borrower’s age, health condition, property size and location, and the credit rating.
- Unsecured Home Improvement Loan:In this loan the lender does not use the borrower’s home as a guarantee as a result it is riskier for the lender but easier for the borrower. However, due to lack of security, the loan amount is smaller and the loan duration is 10 or less than 10 years. For an unsecured loan, the interest rate is not tax-deductible and depends upon the borrower’s credit score.
Benefits of Home improvement loans
A home improvement loan offers many attractive benefits. These are:
· Eligibility: It is possible to apply for a home renovation/improvement loan as joint applicants or as a sole applicant depending upon the ownership of the house.
- Allows flexibility: There is a flexibility of using the home renovation loan for any purpose related to the renovation, repair, or improvement of the structure of your house such as changing flooring, painting walls, etc.
- Simple Documentation: Home improvement loans such as HDFC Home Loans involve a very easy documentation process. The process becomes further simplified if the borrower is an existing customer of the bank. Here are the documents needed for his loan:
- Duly filled application form
- Identity proof
- Income proof
- Employment proof
- Residence proof
- Last 6 months’ bank statement
- Cheque for processing fee
- Original title deed of your home
- No-encumbrance certificate
- Architect/engineer’s estimate of your improvement work
- Low-interest rate: As compared to a Personal Loan a secured home renovation loan comes with a lower interest rate. For e.g. – HDFC Home Loans start at 8.8% interest rate.
- Tax benefit: There is a tax benefit on the interest component of a secured home renovation loan offered for a certain amount that is pre-set by the bank.
- Faster Processing: These loans are generally processed faster. The process is even simpler and faster for borrowers who already have a Home Loan account with the lending bank. Since they have your documents the existing, property is taken as the collateral and the loan can be processed at a faster pace.
If you want the process to get even simpler, apply for a home improvement loan through MyMoneyMantra. We help you with secured as well as unsecured home improvement loans at lucrative interest rates.
Points to remember whiletaking ahome improvement loan
- The tenure of a home improvement loan is finally decided by the lender based on two important factors among others, such as the applicant’s age at the time when the loan will mature and the property’s age at the time of maturity of the loan.
- It is possible for existing borrowers to get 100% of the projected cost of renovations once the bank has taken into consideration other existing loans on the property. This is possible if all loans taken together do not exceed 80% of the property’s market value.
- In case of new customers, usually 80-90% of their projected costs get passed for funding.
- The home improvement loan is disbursed in batches as per the progress of the renovation work.
What does the home improvement loan cover?
Some things are not covered under a home improvement loan. These are expenses such as the home furnishing, the elaborate woodwork, or any movable furniture.
A home improvement loan covers only what the bank’s valuation expert considers reasonable expenses. Therefore, for a house that is worth Rs. 40 Lakhs if the borrower raises a tiling expense of Rs. 30 Lakhs it will not be passed. When the bank gets a quote, stating the estimate from the borrower it sends a valuation expert to assess and confirm the same. Post that the expert certifies that the home improvement loan will be used as cited in order to get the loan passed.
Personal Loan or home improvement loan?
With Personal Loans getting more and easier to get borrowers are often tempted to go in for a Personal Loan vis-a-vis a home improvement loan. This is also because of the long processing time involved in the latter as compared to Personal Loans.
However, before you opt for a Personal Loan it is important to understand that there are several benefits, a home improvement loan offers in comparison to the Personal Loan. These are:
- It comes with a lower processing fee ranging from 0.5% – 0.75% of the borrowed amount.
- The interest rate is also lower than the Personal Loans.
- It comes with longerloan tenure of 10-15 years and a comfortable schedule for repayment.
- Home improvement loans (secured) also offer tax benefits.
Besides being easily available at good rates home renovation loans help you upgrade your home and lifestyle without stressing too much. A house that is well made has higher rental and resale value in the market. You can opt for HDFC Home Loan or any other that you prefer to do away with funding issues keeping you from doing up your home.