Getting a Home Improvement Loan Despite Bad Credit

Even if you have bad credit, a home improvement loan may be within reach for you. Home improvement loans are designed to provide you with the cash you need to make repairs and improvements to your primary or secondary residence. There are many advantages to obtaining a home improvement loan, particularly if you are struggling under the weight of high interest credit card payments. While it may be more difficult for you to obtain, the advantages of a home improvement loan are often worth the efforts required to obtain the loan.

In most cases, the interest you pay on a home improvement loan or equity loan is tax deductible as long as the property is your primary residence (and in some cases for secondary residences as well, provided they are not income properties). The tax savings alone may be worth the efforts it takes to obtain the loan, but there are additional advantages, such as being able to pay off high interest credit card debt with some of the money.

Types of Loans

There are two major types of home improvement loans: cash out refinances and home equity lines of credit. In the first type, you refinance the entire balance of your home mortgage in a new loan and increase the size of the mortgage in order to obtain cash back to pay off credit card debt or make improvements to the home. The second type of loan provides you with the same funding, but in the form of a secondary loan that does not pay off your initial mortgage.

How to Obtain a Loan

Finding a lender willing to extend credit is not as difficult as you might think. Unlike unsecured credit or credit cards, a home improvement loan is given in exchange for a lien against the property; the value of your home is used as collateral. To find a lender when you have less than perfect credit, your best bet is often to enlist the assistance of a loan broker. Instead of filling out a loan application with each lender, you fill out one application for the broker, who then tries to match you with the best lenders.

Your broker will require detailed financial information from you and will request your permission to pull a credit report. This information, along with information about your current income and other debt payments will be used to match you to the right lender. There are programs available for nearly everyone, although your credit score can affect your interest rate (the lower your score, the higher your interest rate might be). However, the interest rates on home improvement loans are always much lower than credit card interest rates, so if you are planning to pay off credit card debt, you will definitely save money each month.

Conditions and Restrictions

Many lenders may require you to pay off and close the credit cards as a condition of funding the loan. This helps to ensure that you will have the money you need to make the required repayment. They may also require you to pay for an appraisal to ensure that the home's value will support the loan against the home's equity.