Home improvement loans are an effective means of financing home improvement projects. Home improvement credit is available for any size project, from small-scale loans up to large home equity loans. Home improvement loans can usually be used without restrictions, either to pay home improvement contractors or to finance DIY projects.

Home Improvement Loans and Home Equity

Home equity loans are perhaps the most common home improvement credit option for homeowners. The home improvement loan amount is based on the homeowner’s equity, and can be used for home improvement costs as they arise. Depending on the lending institute, a home equity loan may be equal to up to 90 percent of the homeowner’s equity.

Long-Term Home Improvement Loans

For very expensive home improvement projects, a long-term home improvement loan may be a better choice than a home equity loan. Long-term home improvement credit with fixed payments and interest rates generally offers lower monthly payments than home equity loans, and can be paid off over the course of 15 to 30 years.

Cash Out Mortgages and Home Improvement Loans

Often the best time to make home improvements is before moving into a house, but few people have the extra cash for home improvement projects in addition to a down payment and closing costs.

Home buyers who know their new home requires renovations can opt for cash back mortgages. A cash back mortgage, as the name implies, is a mortgage in which the borrower takes out a loan in excess of the home value, so the borrower receives additional cash when the deal closes.

Cash out mortgages are higher risk than normal mortgages. Lenders may be more willing to consider a cash back mortgage if the borrower plans to use the cash for home improvement, which improves the value of the house.

Government Sponsored Home Improvement Loans

Low income brackets can stand in the way of people trying to secure home improvement credit. Both federal and state agencies offer home improvement loans to people with lower income. Government-offered home improvement loans are often restricted to people within certain income ranges.

Typically, government home improvement credit cannot be used for recreational or decorative home improvement. A homeowner wouldn’t be allowed to use government sponsored home improvement loans to install a swimming pool, for example. Instead, government-offered home improvement loans are intended to improve the structure or energy efficiency of a home, and include such renovation projects as:

• Better insulation
• Central air conditioning
• Energy effective windows
• Furnaces
• Garages
• New roofing
• Septic tank repairs
• Solar heating.

Home Improvement Loans and Taxes

One last note on home improvement credit. Interest on home improvement loans can be written off, to some degree, on taxes. Talk to your financial advisor for information on how much home improvement loan interest you can claim on taxes.