A Financer’s Guide To Home Improvement Loan

Whether it is game of cricket or a loan, it’s always beneficial to consider the other team’s playbook. This will help you to stay better prepared for anything that the opposing team can throw at you. This is relevant to loan application as well. Before applying for one, take a look at the quintessential factors that lenders will evaluate when you apply for a home improvement loan .

* Credit score:

Any lender or housing finance organization will review your financial history and focus on your credit score. Simply put, this is a summary of your total financial status. Approval of your loan depends on a good credit history. Therefore, it might be worthwhile to improve your credit score before applying for a home renovation loan. The number of credit accounts and outstanding debts will damage your credit score. You can improve the credit score by minimizing such factors. It will also help you to get lower interest rates when you apply.

* Repayment capacity:

This is a complicated concept as it includes income and debt ratios. However, there are other factors too that affect repayment ability like exceptional liquid and semi-liquid assets, job stability and career growth. So, it is important to understand that income is an essential factor with respect to repayment capacity. That essentially means that repayment capacity can be much easier to improve if needed.

* Collateral:

Most people choose to use some form of collateral for a home renovation loan . Otherwise, it will be just another form of non-secure high interest personal loans. With the right collateral, you can avail lower interest rates and speedy loan processing. More importantly, you can also get a better loan to value (LTV) ratio. Most borrowers use their homes as collateral for this. If you are currently paying EMIs for this property, then the right evaluation of home equity is important for this processing.

* Appraisals

When a finance organization invests in you and your property, they need the approval of a qualified appraiser. You will pay for this service up front along with other loan processing charges. This evaluation and report will include recent comparable sales, property conditions, neighbourhood and the potential price of the property. This, however, is not as important as your credit score, liquid assets and loan repayment ability. If these factors are in order and display you as a potentially good candidate, getting your home improvement loan can simply become a formality that requires you to just file all the right documents.

With a clear understanding of what lenders look for in your loan application, users can maintain higher credit scores, minimize bad credit debts and maintain a healthy cash flow, which can also speed up the loan approval process.