The Unsecured Home Improvement Loan Application Process

An unsecured home improvement loan are based on the merits of your application and not on your collateral. Unsecured loans are more difficult to achieve for those with bad credit because there is no collateral to negate the lender's risk in the situation. Because this is a risky loan, it will be more expensive to the borrower. This type of loan is best for a home owner with limited equity but a solid financial history.

State the Purpose of the Loan

Home improvement loans will increase the value of your home. As such, there may be tax implications. You should consult with a real estate expert to determine the estimated increase in value and property taxes. There may also be federal FHA programs to guarantee certain types of improvements. Energy efficiency, improvements in plumbing and safety improvements are just a few changes that may be applied to FHA loans. In any case, your lender, particularly if it is a bank, will need to code your loan appropriately. State the precise reason you are seeking a loan including any quotes you have received for the improvements.

Submit Financial Statements

Your financial history and credit score will be scrutinized more closely when you seek an unsecured home improvement loan. You will need to show your credit history and explain any previous flaws, especially bankruptcies or defaults. Any bankruptcy should be at least 7 to 10 years old and late payments should be at least 2 years old. This should give them ample time to expire on your initial credit check. However, if they do come up, it is essential you can point to the exact circumstances that caused the default and show those circumstances have changed.

Provide Additional Information

Your income may come into play when you are seeking a home improvement loan. It is preferred that you have consistent employment history and best if you have been with the same employer for a few years. Showing your income has increased incrementally during your tenure will additionally help to validate your financial security. You will likely be required to submit character or other financial references if you have bad credit. Any third party lender who can attest to your ability to make payments is a good reference. If you have rented in the past, make payments on a personal loan, etc., that lender is a great resource to show you are credit worthy.

Negotiate the Terms

Once a lender has accepted your application, you will have to negotiate the terms of the loan. You will not get to choose your interest rate. You will likely have options as to the length of the loan and monthly payments, however, which may raise or lower your interest rate accordingly. This is the appropriate time to discuss fees and penalties. Ask what will happen if you decide to pay your loan off early, move out of your home prior to completing renovations, or refinance down the line. These factors will greatly impact the total equity you have in your home when it is time to leave. The goal of any home improvement loan should be to increase your equity and enjoyment of your property, so protect this goal from the onset.