Home improvement stores should be crowded this spring, as record numbers of homeowners tackle project they’ve been putting off.
“In most markets across the country, rising house prices are bringing more homes to the market and increasing sales, which is a large driver of home improvement activity,” says Chris Herbert of the Joint Center for Housing Studies at Harvard University.
Still, values haven’t risen enough for many owners to finance a remodeling with a home equity line or loan, a traditionally popular way to pay for renovations.
Most lenders won’t approve an equity loan — which is a “second mortgage” secured against the property just as a primary mortgage is — unless the total borrowed (first mortgage plus equity loan) doesn’t exceed 80 percent of the appraised value of the home, notes Keith Gumbinger, spokesperson for hsh.com, a mortgage data site.
Even though the JCHS predicts home improvement spending will break a record this year, some owners will be restrained by “still limited equity levels and today’s restrictive lending environments,” says Abbe Will of JCHS.
Another type of borrowing, the personal loan, is growing popular for those with limited equity.
These loans, though, may have rates above credit cards and certainly well above home equity offers, Gumbinger says.
Personal loans are like credit cards, in that they are unsecured, or not collateralized by the home.
In some cases, banks and credit unions offer both unsecured home improvement loans, where the proceeds must be used for remodeling, and personal loans, with no restrictions on the use of funds, says James Royal of Informa Research Services, Calabasas, Calif.
Personal loans are also typically available from a new breed of “marketplace lenders” on the Internet. Borrowers often find these lenders using search engines, says Suk Shah of avant.com, a lending site.
— Marilyn Kennedy Melia
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