Using Bank Financing For Home Improvement Projects

By: Glenn Whitehead

Probably, the most common source of financing for home improvements and remodeling, bank loans can be an effective method for paying for your project and increasing the value of your home. While they are not as easily obtained as they were a couple of years ago due to the current financial crisis, they are still available if you have good credit and home value. With interest rates at the lowest point in decades, now is an excellent time if you are in the market and qualify. There are several different programs available depending on the bank and your needs including:

Cash Out Refinance

With a cash out refinance, you are refinancing the entire amount due on your property and borrowing additional money on the equity you have in the property. This does, of course, increase the amount that you owe on the home, but, depending on the amount of cash you take out and the interest rate, you may only see a small increase in your monthly payment. If you have enough equity in the property and can qualify, this is an economical way to pay for your project.

Home Equity Second Mortgage

With this type of loan, you keep your existing mortgage and take out a second mortgage against the equity you've accumulated in the property. You should probably expect to pay higher fees and interest rates with this type of loan, but it's still probably a better option than paying for repairs with a credit card.

Home Improvement Loans

Some lenders offer these loans which are usually secured by the equity that is gained from the improvement. Such things as room additions and swimming pools increase the value of a home. Typically, you will receive the funds in progressive payments as the work is done. At your request, the lender will send an inspector to verify that the proper amount of work has been completed for the requested portion of the funds. Depending on the lender, this may involve having a second lien placed against the home until the loan is paid. Using this type of loan and then refinancing the home later may also be an option.


These financing options can be an effective way to make improvements to your property, but it's always advisable to do some research before entering into an agreement concerning your home. Read all of the fine print and details before signing to make sure you understand the terms and conditions of the loan.

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