Making Sense of Home Improvement Loan Terms and Conditions

Just short of two-thirds of American-occupied households are owned by their residents; in other words, 65.1% of occupied homes in the U.S. were being lived in by their owners as of Q4 2019, says the United States Census Bureau. Since the Great Recession, domestic home ownership rates decreased year-over-year, though they’ve been rising since 2016.

The number one reason why homeowners renovated their dwellings in 2018 is because they finally got the right to do so, says iPropertyManagement. This means you should know how to understand the terms of your home improvement loan.

Hear From the Experts: Understanding New Construction Loans

Financial Literacy Is a Widespread Issue in the U.S.

According to a Standard & Poor’s poll, just 57% of American adults are considered financially literate. Don’t feel ashamed for not understanding money on a high level, as many American adults didn’t even grow up taking a personal finance class.

Every adult — and adolescent, for that matter — should strive to learn more about personal finance. Even if you are confident in your ability to read through legalese-heavy financing agreements, the surefire way to not get shafted by home improvement loan lenders is to hire a tax attorney, financially sharp attorney, or financial advisor to read over the lenders’ terms and conditions and even negotiate on your behalf.

What, Exactly, Does a Home Improvement Loan Entail?

Generally, home improvement loans are unsecured personal loans that offer a lump sum of cash or line of credit that is paid back in fixed installments over an agreed-upon period. They usually top out around $50,000 for most homeowners, though established builders, real estate professionals, and investors may get greater loan allowances. Term lengths range between one and five years, on average.

LendingTree’s Student Loan Hero shares that LendingClub, a popular lender of personal loans, including those specifically for home improvement purposes, charges as much as 35.85% APR on these loans.

Thanks to the modern lending world’s fondness for the Internet, it’s possible to apply for several loans with the industry’s top financiers from the comfort of your home. You may have to appear in person, especially if being serviced by a local or regional bank.

Things to Watch Out for in Home Improvement Lending

Like mortgages, home improvement lenders are sometimes entitled to your home if you default on the financing used to hire contractors or buy materials. This is one of many clauses to look out for in home improvement loan financing agreements — you could very well get shafted if you look this key detail over.

Consider fixed-rate options that aren’t based on risk. Variable rates could be artificially or unfairly increased by lenders. Legal representation isn’t cheap, either, so you are better off just choosing a fixed-rate home improvement loan to begin with.

Always ask about points. Points are fees that don’t count toward your principal or interest owed. These points are then offered by some lenders in exchange for reducing your interest rate. Make sure to determine if such an offer would actually be financially viable before agreeing.