While that may be a good option for some homeowners, others may not want to get one of these loans, either because they do not have a lot of equity in their home or because they do not want the hassle of applying for a new loan.

But that doesn’t mean a home improvement project has to be put on hold, there are several other ways of funding a renovation project.

• Cash. As with any other major purchase, paying with cash could save you a lot of money in interest and finance charges. While the option is not always viable, carefully weigh the pros and cons of financing your project versus waiting until you have saved enough money to pay with cash.
• Credit cards. If you don’t have a major project, you may be able to charge the expenses to a major credit card or an in-store charge card. Be cautious with this option however, because unless you can pay off the balance quickly, you may be charged a lot of interests. If possible, you may want to sign up for a low interest credit card and plan to pay the balance off before the interest rate spikes.
• Title I Property Improvement Loan Programs. These loans, available from most commercial lenders is insured through the Federal Housing Association (FHA) may be a favorable option for residents who do not have a lot of equity in their home. There are be some restrictions on the type of worker covered by the loan, and there strict loan limits. Check with your local bank for more information.
• IRA loans or borrowing from life insurance.  While these options sound like they are equivalent to “borrowing money from yourself” there are some very serious tax penalties to think of. Basically, these options should only be considered if all other potions have been exhausted and the work needed on your house is severe and cannot be differed until a later date.

While a home equity loan might be an option for may people looking to fund a home improvement project, it is not the only option.

By David Plowman

• Know your credit history. Any lender you work with is going to check your credit history and your credit score, so you should do the same, long before you fill out a loan application. Errors can and do happen, so should be familiar with your history and correct any errors before potential lenders look at your history.
• Know if you eligible for homebuyer programs. Most areas will offer government-sponsored first-time homebuyer programs that may offer better loans rates than you’d find elsewhere. Some programs may also offer loan options for people with damaged credit.
• Get pre-approved for a loan. There is a big difference between “pre-qualified” and “pre-approved.” A pre-qualification is a general review of your income and debts, usually based solely on information you provide the mortgage company which gives you an idea of how much of a loan you could receive. The process to be pre-approved is more complex. You will generally have to provide proof of your income and debts (in the form of tax returns, pay stubs and credit information. The potential lender will also check your credit history. If you complete this process successfully, the lender will provide a written verification that they will actually loan you the money, pending appraisal, title report and purchase contract. In almost all cases, a seller would opt to sell to someone who is pre-approved for a loan as opposed to someone who is just pre-qualified.
• Borrow what you can afford to pay back. Just because you are approved for a loan, doesn’t mean you can afford the monthly payments. Don’t opt to get the maximum loan amount you can only find every cent you make has to go back into making your mortgage payments.
• Shop around for the best rate. Just as your would shop at different retailers for different rates for similar products, lenders may offer different rates for the same loan. Check with several companies to know you are getting the best deal.(Click here for more information on shopping for a loan.)
• Know what you are getting charged for. Lenders may add a litany of fees to their loan amount. When you shop for a loan, ask about any miscellaneous fees in addition to the interest rate and any points you may have to pay.
• Budget for closing costs. It is a reserve corollary of the adage “you need money to make money.” When it comes to getting a home loan, “you need to pay money to lend money.” The day you close on your home and sign the final loan papers can be a very expensive day. You may need to pay for attorney’s fees, taxes, prepaid homeowner’s insurance, the miscellaneous lender’s fees discussed above and points. Your lender should give you a solid estimate of all the closing fees involved, but you should start a savings fund for those fees well before then.
• Keep a savings reserve. With all of the home buying charges and the monthly payments, it might seem like you are hemorrhaging money. While that may be the case, you should also make sure you have some emergency reserves. You need to be prepared if the roof on your new home suddenly springs a leak or if the air conditioning goes on the fritz. If you are already tapped out by buying the home, e such an emergency could turn into disaster.

When looking for a home mortgage, being prepared could save you time and money.By David Plowman

When buying a home, you will first have to determine the price range of houses you will be considering for your purchase. Consider how much of a downpayment you will be making and how much of a monthly payment you can afford to determine your budget.

The next step in choosing a home lies in choosing the neighborhood you wish to live in. Narrow down your choices to 3 or 4 different neighborhoods using these criteria:

property values
quality of local schools
traffic
crime rate
commuting time (if applicable)
closeness of shops, cultural activities, parks, schools, and public transportation

Once you have zeroed in on a few neighborhoods, consider the type of home you will be purchasing. Most buyers search for single family homes, but there are other options, such as multifamily homes, condominiums, and co-ops which you may wish to consider.

After you have settled this issue, then you must determine the number of bedrooms your home will have. Of course, this will be determined by your personal needs, however you may want to consider that generally, houses with three or more bedrooms have greater potential for appreciation than two bedroom houses. Similarly two bedroom condos resell much easier than single bedroom condos. In addition, consider the costs of renovations or repairs you may wish to make.

Once you have found your dream house, be prepared to make an offer right away. This is especially important if the property is underpriced or newly listed. There is nothing more disappointing then having your dream house slip through your fingers.

Happy Househunting

Before you begin shopping for a loan, you should estimate the total loan amount and the monthly payments you can afford. Begin by calling local banks and lending institutions, or by researching lenders on the internet. If you have a checking account at a bank or credit union, make sure to contact them, as they might give a deal to existing customers.

When looking for a mortgage, find out if you are dealing with a lender or a broker.(Click a here for more information about the difference between the two.)

But whether you are going through a broker or directly through a lender, understand that  these companies operate competitively, so you should shop around for the best deal on the “product” you are buying (your loan) just as you shop for any major purchase. It is recommended that you call at least three lenders or brokers to get the best deal.

When you talk to them, remember that the loan with the lowest monthly payments may not be the best deal. That’s because lenders structure their loans differently, and some may have higher closing costs than others, while other loans may require a larger down payment than others.

Instead, you should ask each lender or broker the same questions about loan. Make sure to ask them:

• What is the minimum down payment?
• What is the length of the loan?
• What is the interest rate?
• What is the annual percentage rate (APR)? (This number, expressed as a yearly rate. It includes the interest rate, points, broker fees, and any other loan charges.)
• Are any points included in the loan?
• Are there any monthly private mortgage insurance premiums (MPI) included in the loan? If so, how long must you keep the insurance?
• What escrow payments are needed?
• What will the total estimated monthly payment be? (This should include the principal, interest, taxes, insurance costs, and any PMI costs.)

In addition to these loan costs which are generally part of your monthly loan payment,  there are several other payments you may need to pay at the closing of your loan. Keep in mind that different lenders may have different names for these fees and may that they may have additional charges.

These fees include:

• Application or loan processing fee.
• Origination or loan processing fee.
• Lender fee or funding fee.
• Appraisal fee.
• Attorney fee.
• Document preparation fee.
• Broker fee.
• Credit report fee.

After you have found a loan program you are satisfied with, you may want to ask to see if the prices you were quoted can be “locked-in.” Doing so could protect you from having to pay increased fees if rates rise from when you were quoted the loan price. Some lenders may charge for this, but the fee may be refunded at the time of the loan’s closing.

By putting in some extra legwork when you shop for a home loan, you could save thousands of dollars.

By David Plowman