If your credit score is lower than 680, it becomes very difficult to get a loan. This can be a problem since those of us with bad or fair credit are usually the ones who need it the most. It usually takes more than seven years of great payments to see a real difference in your credit score. So, when it’s time to make some improvements to your home, how do you get the necessary funding?
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How to Get the Funds You Need for Home Improvement
Getting a home loan when you have bad credit is extremely tricky. A mortgage, no matter how small the amount, is something lenders take very seriously in the aftermath of the recession. Very few will take a chance on someone with a bad track record (even as lending terms are gradually loosening). However, a home improvement loan is a different story. Even if you have bad credit, there are options for you.
The key is to do your research and understand the pros and cons of each type of home improvement loan. A loan that looks good on paper may not benefit you all that much, just as a loan that doesn’t look attractive on the surface may be exactly what you need.
As you do your research and sort through your options, here are some specific types of loans to consider.
1. Take Out a Personal Loan
Personal loans are highly attractive because of the ease and simplicity of the application process. You can go online and apply for a loan directly with a lender and get a decision instantly. If you get approved, great! If you don’t, you can move on and try other options.
If you have bad credit, a personal loan is a good “first stop.” While some lenders will be wary of working with someone who has poor credit, people with fair credit will get consideration. And because of the variety of lenders online, you have plenty of choices.
2. Take Advantage of Government Loans
Did you know that the U.S. Department of Housing and Urban Development (HUD) offers a variety of programs to help homeowners who are looking to rehab old homes and fix up rundown houses in certain neighborhoods?
One example is the Streamlined 203(k) program, which allows qualified homeowners the chance to integrate up to $35,000 of repairs and improvements into their mortgage. If you’re in the process of buying, this could be a good option. HUD has a variety of additional programs, as well.
3. Find a Private Lender
Who says you have to go through a government entity, bank, or lending company? If you find someone who is willing to provide you with the funds, you can always go the route of a hard money lender.
The benefit of working with a hard money lender is that your credit score may not matter to them – they’ll just be interested in your ability to repay the loan. The downside is that interest rates are typically much higher for this type of loan. If you do go this route, be sure to do your research and have a lawyer look over the terms prior to signing.
Don’t Give Up on Your Home Renovation Dreams
After getting turned down for a traditional loan from the bank, it’s easy to feel discouraged. However, there are always other options. Don’t give up on your home renovation dreams. Review all of the possibilities, do your due diligence, and make smart decisions that makes sense for you, your family’s finances, and your home.
What are your tips for skirting bad credit scores? Share them in the comments below!