Image courtesy of rantchic.com
If you’re looking to make home improvements then you’re probably thinking about raising some extra money. Until recently that would have meant either going to the bank or your mortgage company. Today’s finance market however offers a diverse range of finance packages to suit most situations and credit history.
The upside to having so much choice is that you might be able to borrow more cash than you thought. But it also means loan shopping can be confusing.
Picture from becuo.com
You can save a lot of time and worry by asking yourself three basic questions before you start:
- How much money do I need? Many people underestimate the amount of money needed at the start of the project. Whether you’re hiring a contractor or planning on completing the work yourself you must start with a realistic appraisal of your financial needs including labor, materials and a 10% contingency plan for little surprises. Make sure you get three quotes for every part of the project and what this quote does and doesn’t cover. If your credit rating is good you could even add another 20% on top just in case.
- How much can I afford? Affordability is based on three criteria; Loan To Value (LTV) ratio, your income and your credit rating. LTV is a calculation used to decide the amount of money a lender is able to offer you. It uses the total value of the item or project divided by the loan amount. The percentage they are willing to risk will depend on your credit history. Even if you have a high income that doesn’t guarantee a high loan amount if you have a lot of expensive outgoings or you have a bad credit rating. Your income allows a lender to see how much you could afford to pay back and over what period. The longer the loan term the less expensive the monthly payments but the more interest you will pay so this is something to look for if you ask to borrow over a long period of time.
- Which lender is right for me? There are several options for lenders including mainstream banks (loans and mortgages), personal loan brokers, credit unions, other mortgage brokers and even finance through contractors themselves (although this is not an advised route). The lender that is right for you depends on the amount of money you want to borrow, over what period and your credit rating. Mainstream banks for example tend to offer better interest rates and loan terms because they have huge financial backing but they are also one of the most risk averse when it comes to the amount you can borrow so these are not for anyone with a poor credit history. Other regulated lenders can be more flexible with their risk assessment (although you will probably pay a higher interest rate). These lenders can offer a range of loan packages to suit your needs both secured and unsecured. You can even secure your loan on stocks, bonds, savings and even your pension.