Should You Take out a Loan to Fix up Your House?

Since the housing market crash, everyone has been a little wary about the lending process, from banks and other lending institutions to average Joe’s looking to purchase their first home.  It’s no wonder when once consider the massive and ongoing layoffs and home foreclosures that have punctuated the “Great Recession”.  And with the economy still circling the drain, the European Union suffering from decline (thanks to a handful of bankrupt nations and the destabilization of the Euro), and even China (which has been just about the only country in the world sustaining economic growth) starting to see problems in their own housing market, taking out any kind of loan may not seem like a particularly timely plan.

Should You Take out a Loan to Fix up Your House?

Should you take out a loan to fix up your home?

Should you take out a loan?

And yet,  with interest rates remaining low and businesses doing everything they can to secure the consumer dollars needed to stay afloat (including undercutting the competition), now could be an excellent time to do the upgrades on your home that will show a major return when the housing market rebounds and you’re ready to sell.  So is this the ideal time to take out a loan in order to fix up your home?  It depends entirely upon your situation, and there are several factors you’ll need to consider before you make a decision.

Evaluate your credit:

You’ll want to start with your credit.  Lenders have essentially tightened the purse strings.  While they were handing out home loans like candy a few years ago, it appears the rash of foreclosures (complete with insurers refusing to pay), has left most banks with a sour taste and no keen desire to repeat mistakes of the past.  Unfortunately this means anyone seeking a loan will have to work a lot harder to get it.  So if you have anything less than stellar credit, you might want to take some time to clean up your report before you go looking for handouts.

How much equity do you have in your home?

Consider the equity in your property:

But you should also consider the equity in your property.  For most homeowners, the easiest route for securing money for upgrades is to seek a home equity loan from BB&T, the amount of which will be based on your current equity. This is determined most simply by what you can make on the sale of your home (as appraised) by what you still owe.  Since many homes have dropped significantly in value over the last few years your equity could be much lower than you suspect; in fact, your home could be worth less than you owe on it, leaving you with negative equity.  In this case, don’t be surprised if no offer of an additional loan is forthcoming.

However, if you happen to be one of the few lucky homeowners that still has an unblemished credit history and actually holds a decent amount of equity in your property, there’s no reason why you should not be approved for a home equity loan.  The only question is: should you take it?  Again, there are a few caveats.  If your job/income is stable and you plan to hang onto the property for an extended period of time (at least until the market recovers, although that could be several years away), then you are well positioned to take a loan and make some upgrades.

As long as your plans improve the overall function and appeal of the home (rather than simply addressing your personal, aesthetic desires, which other buyers may not share), there’s no reason not to move ahead with fixes, although you may want to check with a consultant or contractor to see if you can cut costs or hold off on certain repairs without causing more damage down the line.  Remember, not everything upgrade will show a return on investment, so it behooves you to spend wisely.

For more moving tips on Stagetecture, click here.