For homeowners who need a home improvement loan, a remodeling loan or a rehab loan, they should weigh all of their options first. Home improvement loans and rehab loans are great alternatives for those who don’t have the cash on hand or don’t want to tap into their reserves. Remodeling loans will vary in terms and rates depending on which type of loan you select for your remodeling project. The lowest cost home improvement loans are the home improvement loans that are secured with a mortgage.

There are many choices for financing home remodeling projects. There is the 203K F.H.A. mortgage loan, a closed end second mortgage, or a home equity line of credit while others find it easier and less costly to refinance their first mortgage and include the remodeling project into the new loan. Each type of loan has its advantages and there are no rules that apply to everyone in every situation. For some, the choices will be limited due to underwriting restrictions while others will have a wide variety of types of loans to choose from.

The interest rates on all of these loans will vary daily with the market but mortgage loan pricing is risk driven. The greater the risk to the lender, the higher the rate on the loan. For instance, a mortgage loan that takes a second lien position will have a higher interest rate than a mortgage loan that is in the first lien position. This is because in the event of default, the first mortgage holder gets satisfied first and if there is anything left, the second mortgage holder may get paid. The greater the L.T.V. (loan to value) the higher the rate because a high L.T.V. means the loan has a greater risk for the lien holder.

Some homeowners may take the time to overhaul their finances and combine a debt consolidation loan with their home improvement loan. In some instances the savings of the debt consolidation may make the payments on their remodeling loan. The 203K loan above is interesting because value after improvement is considered when the loan is underwritten. Many times this is the perfect loan for major rehabbing of a property. Whatever your situation, the first step is to contact a mortgage expert who has many loan products available. In doing so, they will reduce their chances of being force fitted into a bad loan.

By: Bill Burress