Home improvement loans are designed to help borrowers remodel or add additional features to their homes. Kitchen and bath remodeling is the most popular home improvement, but other purposes such as installing a new roof, building a garage, or adding a swimming pool are other common improvements. There are two types of home improvement loans available to most borrowers; Traditional Home Improvement Loans and FHA Title I Home Improvement Loans.
With either type, the borrower must own or be buying the home since it is to be collateral for the loan. Traditional Home Improvement loans require the borrower to have substantial equity in the home, usually 20 percent or more. The existing equity in the home, along with that created by the improvements, is the collateral. The lender secures the loan taking a first or second lien.
Most home improvement loans are for ten years or less, although some lenders have programs allowing for up to 15 year repayments, depending on the amount of money borrowed. As with mortgages, the interest paid on home improvement loans is tax deductible. Interest rates on home improvement loans are usually significantly lower than those for personal loans because lenders consider them risky.