All you need to know about home improvement loans

Every few years, we feel the need to give our homes a makeover. We like to repaint the house with trending colours or use unique wall-papers. We may even want to undertake certain repairs, change the furniture or make certain modifications to the size of our rooms. All of this can prove to be rather expensive. However, you can get finance for the same by applying for a home improvement loan. Let’s find out what this type of home loan entails.

The eligibility criteria

To be eligible for a home renovation loan, you need to fulfil these basic, below-mentioned requirements

• You must meet the lender’s age criteria
• You need to be the legal owner of the property you wish to renovate
• All co-owners of the home must be listed as joint applicants of the loan

Note that you can avail the renovation loan even if you have an existing home loan. For instance, you may be repaying a housing loan with tenure of 20 years and may need to make modifications to your house after 10 years.

Documents required

Documentation is an essential aspect of all kinds of loan. A house renovation loan is considered a high-value loan, which is why you have to submit some documents when you apply for one. The documents you need to provide include:

• The duly filled loan application loan
• The documents of the property you wish to renovate including the original title deeds and proof of no-encumbrances on the property.
• A document featuring the estimate of expenses for the proposed renovation work. A civil engineer or an architect should draft this document.
• The ID proof documents of all the joint owners of the property
• The address proof documents of all the joint owners of the property
• The income proof documents of all the joint owners of the property
• The employment proof documents of all the joint owners of the property
• Two passport size photographs each of every joint owner of the property

Since a renovation loan is a high-value loan, the lender requires collateral against the sums loaned. The property being renovated serves as this collateral, and the lender takes possession of the property documents. The lender returns the documents only after you’ve repaid the loan in full.

Finance and down payment

Like in the case of a regular home loan, you are required to make a down payment when you apply for a home improvement loan. Typically, you can get finance of approximately 75% to 80% of the costs associated with renovation, whereas you have to pay the remaining 20% to 25% in down payment. Also, the current market value of the property you intend to renovate plays a crucial role in determining the principal loan amount you can get. Note that lenders may adjust the loan to value ratio based on your working relationship with them. For instance, you may become eligible for a higher loan amount if you’ve previously applied for a loan from the same lender, and repaid it within the stipulated tenure.

Final word: So, if you need to make any changes to your house, you can consider applying for a home renovation loan. The interest rate levied on these loans differs from lender to lender as does the tenure. That said, lenders generally offer long loan repayment tenures, akin to a regular home loan, which means that the renovation loan can be repaid in flexible tenures lasting up to 20 years.