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Affordable Housing Finance

Home Improvement Loans: Everything you want to know!

25 June, 2018      Home Loans


Building a dream home for yourself is a never-ending desire. Even after owning a home, no one can remain satisfied for long and desires for more. If not a new home, then at least to give your current home the best possible renovation possible.

Home Improvement Loans

Building a dream home for yourself is a never-ending desire. Even after owning a home, no one can remain satisfied for long and desires for more. If not a new home, then at least to give your current home the best possible renovation possible to keep it up to date with both latest trends and also your desired requirements. But these updates to your existing home may demand good money and thus, financing becomes an issue and customer ends up getting disappointed by skyrocketing prices of raw materials that are generally used for such renovations. But the good thing is, there is no need to get disappointed or disheartened if monetary liquidity seems to be an issue, Home Improvement Loans are the perfect solution to your problems.

As the name suggests, Home Improvement Loans can be used to finance your home renovation needs like; making some external changes to the home or even internal ones like flooring, painting, electrical work at home, remodeling kitchen or stonework paving walls etc. whatever your needs are they can be funded by this particular product.

How does Home Improvement Loan work?

1. Understand your requirement: The first step in this process would be to get an estimate of the renovation you want to do in your house. It should be done by consulting a well-recognized contractor or an architect of your area. By doing so, you will have a precise idea of the expenditure that would be required to fund your desired upgrades. Other than this, there is another major reason why one should consult an architect and get an estimate of expenditure. This estimate will be used by the lenders at the time of loan application to analyze the loan eligibility with respect to the estimate provided by the architect. One suggestion for borrowers would be to keep a buffer of 10 to 20% of the total estimated expenditure as full 100% funding will not be done by any bank or NBFC.

2. Understand your eligibility: The eligibility calculations for a Home Improvement loan is similar to that of any regular Home Loan. Banks won’t fund more than 80% of the total cost of the current property that would be kept as a mortgage. Income eligibility also plays a role; banks would ensure to check the financial capability of the customer to serve a new loan, taking into consideration all the past obligations. Lastly, the final loan amount would be decided, taking into consideration the renovation estimate that is provided by the architect.

3. Understanding the Payment Plan: Generally, banks or NBFCs do not fund the entire amount all at once. The payments are done in tranches, as the home renovation work progresses. Bank/NBFCs will sanction the entire amount in one go but will provide disbursements in stages, which are linked with the stage of construction, basis the construction estimate provided. That means the complete disbursement takes place when the construction reaches the last stage of the total work that is to be done. Banks or NBFCs uses external parties or agencies who make regular checks at the construction site, post which if the agency sends a positive report to the bank, further disbursement is done.

4. Understanding the scope of Home Improvement Loans: It's quite easy to understand what all is covered under this category of loan. Basically, every type of modification or addition that is within the built-up area of the home is covered by this loan. To list down different kinds of renovations won’t be possible, but almost any kind of renovation such as, increasing height of wall, designing kitchen, flooring, stonework on floors or walls, electricity work in home, plumbing work in home, extension of balcony or room or even a floor can be covered under this Home loans category. Purchasing any durable item for home won’t be considered as home renovation.

Home improvement loans can be a great option to fund your renovation needs so that you could add value to your homes and enhance our liability. Like any other loan, it is advisable to search for best rates available and to understand all the terms and conditions associated with the loan. Maintaining a healthy credit history is a must.