Today we’ll take a look at each, and look at when it’s best to take them out.

Home Equity Loan

A home equity loan is a lump sum loan that you take out with your home as the collateral. This type of loan is for a fixed amount, and may be relatively large. In many cases, you can borrow up to a certain percentage of the value of your home with this type of loan. Sometimes, these loans are referred to as a “second mortgage.”

A home equity loan is best for when you have major expenses, unexpected expenses, or when you’re making a large investment in your home.  A home equity loan offers you a lower interest rate than a home equity line of credit. The loan term is often longer than it is with other loan types.

Home Equity Line of Credit

A home equity line of credit is a little bit different. This is a line of credit that you can draw on in the same way that you might draw from a credit card or a savings account. The line of credit is secured by the equity in your home. The rate for a home equity line of credit is usually adjustable, which means that it may change from time to time depending on market trends.

A home equity line of credit is best for ongoing projects, such as major renovations to your home that you want to do over a period of time. The advantage to this type of loan is that you only pay for what you borrow. In addition, you can often qualify much easier for a home equity line of credit than you can for a home equity loan.

No matter which type of personal loan you choose to pay for your improvements or renovations, remember that it pays to shop around. Compare rates and costs of loans and lines of credit at several different banks before you commit. In the long run, this can save you hundreds of dollars in interest.

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Start with an Estimate

The first step in the process is to figure out how much it’s going to cost to do what you want to do. Having a written estimate will help you know how much money you need, but it will also help you figure out what kinds of grants you can apply for. Most of the time, a contractor or home improvement company will be able to give you an estimate as to the cost of the repairs or improvements at no charge. Get estimates from a couple of companies to make sure you’re getting a fair price.

Start Grant Searching

Next, you need to start looking for grants. While Matthew Lesko would prefer you order his books on how to get grants, the fact of the matter is that there are plenty of free grant search engines available. One of them is located at http://www.grants.gov, for example.

Contact HUD

The US Department of Housing and Urban Development is a wonderful resource if you need to find home repair grants. HUD can help to pay for repairs that make a house safe and secure. HUD may have an office in your local area, or you may have to call in to a regional office to find out more.

Try FEMA

While the Federal Emergency Management Agency has certainly gotten a black eye since Hurricane Katrina, the fact of the matter is that FEMA has made improvements. If your home was damaged in a natural disaster of some sort, FEMA may be able to help. Usually, after a natural disaster, FEMA will set up local offices and you can find more information there.

Look Local

Some communities may offer special grants designed to help particular areas. For example, some neighborhoods that have been affected by urban blight may be eligible for grants, or even low-interest personal loans, to make improvements to the property or to make repairs.

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What a home improvement loan does

Home improvement loans are, in the most basic sense, loans used to improve your house or your property. They work financed by these loans should either maintain or increase the value of your house. They might include things like structural repairs, redoing your kitchen or a bathroom, or improvements to the property. Even landscaping or the addition of a swimming pool may be considered to be a home improvement.

Types of home improvement loans

There are a few different options available to folks who want to improve their homes. Here are some of them:

• A first mortgage. This is a home loan you take when buying the home. It may include a certain amount of money for home improvements designed to increase the value of the home.
• A second mortgage. Also known as a “home equity loan” or sometimes a “home equity line of credit,” this kind of loan is borrowed against the equity in your home.
• Refinancing. Some folks may be able to refinance their home to take advantage of some of the equity in their home. They can then use that equity for home improvements.
• Personal loans. These are unsecured loans, sometimes also known as “signature loans,” that you take out for the purpose of home improvements.

First steps

Before you start the home improvement loan process, however, you need to know what you’re going to do with the money. You need to have a detailed plan, along with estimates for the costs of the improvements. If possible, you should also have an estimate of how much and in what way the home improvements will increase the value of your home. This may help build the case with the lender.

There are some other specific kinds of things you need to think about, too. You need to figure out whether the improvements will increase the value of the home more than the amount of the loan. If not, you need to identify what kind of benefit you’ll get that’s  not monetary from the improvements. You’ll also want to find out what the monthly payments on the loan will be, as well as what the terms will be on the loan. You should have some idea of how it may affect your taxes, and what tax deductions the improvements or the loans may make you eligible for.