How a Personal Loan can help you Remodel your House

Home remodeling is one project that requires intensive planning. You, as the homeowner, chip in suggestions and preferences, then come the architects, designers, and the builders who’ll bombard you with professional recommendations.

The suggestions and propositions are beneficial as they save you a lot of time and effort. But materializing them is a different story altogether. Home remodeling requires substantial funds because you’re breaking something down and rebuilding it. You get one shot at it and you have to get it right.

If you have decided to go ahead with the home remodeling, how are you going to fund it? You can break your savings but then would you have enough money in hand to tackle medical emergencies and your child’s education? If not, then it’s a bad idea to utilize your savings; instead, you can go for a Personal Loan.

With this kind of loan, you’ll get a lump sum quickly as the application process is simple and fast. You can also choose a flexible repayment schedule that won’t stress your income or hamper your lifestyle.

Are you still a bit reluctant about this option? Well, here are a few pointers that’ll help you reconsider Personal Loans.

Low Interest Rates

A Personal Loan has a repayment period typically between 3 and 7 years. On the other hand, home equity loans offer 20-30 years of repayment tenure. HELOC also comes with a repayment tenure of 20 years with a draw period of 10 years. Simply put, you’ll be paying much more interest for an HELOC or a Home Equity Loan when compared to a Personal Loan.

To understand this better, consider that you’re borrowing Rs.30,000 from a financial institution. If the debt type is a Personal Loan with a rate of interest of 10.5% and tenure of 5 years, the payable interest will be Rs.8,689. In the case of a home equity loan at 5.25%, the interest will amount to Rs.18,517. The rate of interest levied on an HELOC can be as low as 4.25% but with a rise in inflation, the interest paid will be much higher.

Protecting your Home

Defaulting on an HELOC or a home equity loan can result in forfeiture of your home. In the case of unsecured Personal Loans, the lenders cannot sell or auction your home. So, in a way your homeis protected when you avail a Personal Loan as compared to HELOC and home equity loans. However, don’t be under the impression that the lenders cannot recover their money if you default. They can approach courts and get a writ of execution from the judge in order to recover the funds by selling/auctioning your property.

Much Less to Pay

HELOCs and home equity loans include charges, such as origination fees, appraisal charges, insurance fees, title search, and filing fees, which can consume a lot of your income. Personal Loans only have an initial processing fee and in some cases, financial institutions can waive off this fee too.

Value and Debt

You can only sign up for an HELOC or home equity loan if you have enough equity. These schemes demand 10-20% equity after borrowing. For instance, if your home is worth Rs.10 lakh and need to repay Rs.9.7 lakh, the equity left will only be 10%, which is not enough to qualify for the loan.

Personal Loans are a different case altogether. If you have a stellar credit score and have maintained a healthy debt-to-income ratio, you’re eligible for a Personal Loan.

Keeping within Limits

A Personal Loan has a lesser amount to offer when compared to an HELOC and a home equity loan. Once your loan is approved, you cannot borrow more than what you have applied for. This minimum amount can be used in making mid-sized upgrades to your home. This amount not only takes care of the upgrade but also reduces financial burden during the repayment tenure.

Personal Loan Eligibility and Documentation

Once you decide to file for a Personal Loan, a few formalities in the form of eligibility and documentation need to be addressed. The personal loan eligibility criteria for financial institutions might differ, but the basic requirements will remain the same, and are as follows:

• Candidate must be salaried or self-employed
• Loanee can apply for the loan individually or with other owners of the house who’ll act as co-applicants
• Maximum age for the salaried will be 65 years whilst the minimum limit will be 21 years
• Businesses can also apply for a Personal Loan but must be in operation for a minimum number of years with a profitable turnover
• Co-owners of the business must be included in the loan agreement
• The documents required across almost all financial institutions include the following:
• Salary and income certificate for salaried and self-employed individuals
• Banks statements for the last 6 months
• Complete application with recent passport sized-photographs
• Copies of IT returns, ITAO documents, and Form 16
• Copies of original property documents
• A quotation from the builder working on the home renovation project
• Address, age, and identity proofs which can be in the form of PAN card, Voter ID, Passport, or Driver’s license

Some financial institutions, in order to ensure recovery of the loan amount, might ask you to insure your property and name them as the beneficiaries. In such a case, you might have to submit the policy papers

A Home Improvement Loan might be a convenient option, but you must only explore it if you’re sure of your repayment capability. You should momentarily put it off if you have other priorities, such as sending off your kids to college or paying for medical emergencies.