For all the people who want to improve their home, but don’t have the money or have any equity, there is a type of loan available for them known as home improvement loan with no equity. These loans are for those people looking to get advantage of being a homeowner. They can get the loan without having to meet the security or collateral requirements of other loans.
This loan is approved on the bases of their credit scores and debt-to-income rather than on the value of the home. To get this loan, one has to have a high credit score. These loans are the second mortgage loans that are presented to clients only who have no equity in their homes. In this type of loan, the amount of the mortgage is dogged by the value of the home, but, the lenders may offer money, up to 25 percent of the home’s market value.
Benefits of no equity home improvement loan
There are some benefits of this type of loans which one cannot get from the traditional home improvement loans. The prime benefit of this loan is the amount you can borrow. With this loan you can borrow up to 125% of the present value of the home which is not possible with the traditional home improvement loans.
What is the credit sore required getting this loan?
Lenders, who offer home improvement loans with no equity, require their clients to have a FICO credit score of 670 or above. If anyone whose applies for this type of loan has the credit score below 670 may have to face some difficulty.
Rate of Interest for home improvement loan without equity
Since this loan is approved without the equity of the home, thus the lender keeps the rate of interest a little higher as compared to the other traditional loans. The rates can run 6 or 10 points higher as compared to the loans that are granted with equity. Also, there are additional fees associated with the loan that has to be taken into account. These fees can be anything around $10,000.
Risks Associated
A home improvement loan with no equity has lots of risk associated. Home improvement loans are risky because in this type of loan a borrower takes on a higher payment. If the borrower is not properly geared up for the new payment, the risk of default or foreclosure is high. Also, these loans mean that the borrower has a blend of both secured and unsecured loans that if the loan or installment is not paid back, then it could lead to home foreclosure or certainly loss of prime residence.
These days more and more lenders, particularly online lenders are offering this type of partially unsecured loan. If anyone is thinking of applying for this type of loan he should be familiar that a high credit score will help him very much in getting approved. But at the same time home improvement loan with no equity should be avoided by the borrowers as there these types of loans can be potentially dangerous.