Home improvement loans are specific types of real estate loans that are used for the purpose of completing home renovation projects. These are usually drawn from the same types of companies that issue mortgage loans and are sometimes considered to be a type of second mortgage. They can also be issued independently by banks and other lending institutions.
Home improvement loans are similar to home equity loans, although equity loans can be used for a broader range of purposes.
Some common uses of home improvement loans include:
- Repairing broken property structures
- Upgrading windows, doors, overhanging eaves, and other structures
- Adding an additional room or an additional story to a home building
- Adding office spaces for at-home-business use
- Various home gardening and landscaping projects
- Lengthening or widening driveways, garages, or walkways
- Building an additional guest house or storage shed in the backyard
- Overall maintenance and property renovation
Generally, it’s up to the homeowner to determine how the additional funds will be used. Home improvement loans are often somewhat easier to obtain than a full second or third mortgage. The main requirement is usually that the borrower use the funds only for home improvement purposes, and not for other uses (such as vacation or recreation).
Disputes arise when the borrower does not repay the loan. Under the contract terms of a home improvement loan, the borrower must repay the loan even if the home improvement project is not completed. If the loan is not repaid, it can go into default just like any other loan.
Another common dispute in this area occurs in the context of approval and eligibility. As mentioned, home improvement loans tend to be a bit easier to obtain than other home loans; however, basic requirements such as good credit are needed. Disputes over eligibility requirements can put a hold on a home renovation project and can even lead to lawsuit in some instances.
Lastly, home improvement loan fraud is also a common issue. This is similar to mortgage fraud and other types of loan fraud. Many new homeowners or "absentee homeowners" (those who live outside the country) can become targets for loan fraud.
Home improvement loans can sometimes be complex and may require the assistance of a qualified real estate lawyer. Your attorney can help you when it comes to obtaining, negotiating, or revising a home improvement loan arrangement. Also, your lawyer can represent you in a court of law if it becomes necessary to file a civil lawsuit for damages.