Rarely do homeowners have the money available to completely fund a home improvement project, especially expensive projects like a new roof or a home addition. Are you looking to renovate your home but don’t have the funding to do so? One of the best ways to upgrade your home is by applying for a home improvement loan.
Keep reading to learn 7 ways to increase your chances of being approved so that you can turn your home into your dream home.
1. Check Your Eligibility
One of the easiest ways to improve your chances of being approved for a home improvement loan is to first ensure that you meet the loans eligibility requirements. Some lenders have strict requirements that borrowers must meet, such as a minimum credit score or a certain amount of collateral that must be applied to the loan. Take the time to research each home improvement loan and determine whether or not you meet the loan requirements.
2. Choose the Right Lender
If you’re a homeowner with stable income and a solid credit history, you can likely get approved for a home improvement loan through a traditional lender, but, if your credit could use some improving, you may want to seek out other lending options. Small banks such as credit unions and alternative lenders such as online lenders are great options for getting approved for a home improvement loan for bad credit.
For those with less than stellar credit, it may also be a good idea to apply for a loan through an existing lender. For example, if you currently have a checking or savings account with a bank, consider applying through them as you already have an established relationship.
3. Improve Your Credit Standing
Your credit standing is one of the top factors that lenders look at when processing and approving home improvement loans. If you have excellent credit, you can all but assume that a lender will approve your loan application and give you a reasonable interest rate, but, for those borrowers with less than stellar credit, it may be worth putting off your home improvement project until you can give your credit score a boost.
Start by ordering a free copy of your credit report. Look it over to check for any errors such as an account you didn’t open or a credit card account that you closed years ago. You can dispute these errors and have them removed from your report. The less negative entries on your report, the better your standing will be.
If your credit report is error-free, the next step is to work on improving your credit. There are all sorts of ways to do this including:
- Paying off small debt
- Making payments on time
- Paying more than the minimum due
One of the quickest ways to boost your credit score is to pay off debt. If you have a credit card that you can pay off in the next few months, do so. This will improve your debt to income ratio which will help to improve your credit score.
4. Don’t Apply Too Often
A mistake that many homeowners make when trying to get approved for a home improvement loan is applying for loans and lines of credit too closely together. Applying for new loan in months of applying for another loan, credit card, or line of credit can be detrimental to your credit score.
As a best practice, wait at least six months from your previous loan application before applying for a new loan. This way your credit score isn’t heavily impacted. Applying for too many loans too close together can make lenders view you as a risky borrower which can decrease your chances of getting approved with a reasonable interest rate.
5. Have Your Documents Ready
Lenders not only look at your credit report, they also want to have a clear picture of your financial standing. Some lenders require specific documentation that must be provided before approving a loan. Common documents include:
- Bank statements
- Income and expense statements
- Monthly bills
By having these documents prepared and ready to be submitted to the lender, you can speed up the processing of your application
6. Have a Co-Signer
Don’t make enough money to meet eligibility requirements for a loan? Is your credit score lower than you’d like? If so, having a co-signer on your loan can drastically improve your chances of getting approved. A co-signer lessens that risk that a lender faces, especially if you default on a loan. Most applicants have a family member or close friend as their co-signer.
7. Stabilize Your Income
Having a steady income is an important factor that lenders consider. During the time of application, you should have steady cash flow for at least the previous six months. This allows you to show that you can afford to pay your existing bills while also taking on a new loan payment.
Getting approved for a home improvement loan takes you one step closer to repairing and updating your home. To improve your chances of getting approved, be sure to keep these 7 tips in mind.