Which Type Of Home Improvement Loan Is Right For You
As you go about considering home improvement loan options, and which type of home improvement loan is right for you, take time to research, consider, and explore all your options. As loan eligibility, terms and conditions, and requirements also vary by individual loan type and lender, its also important to do some up-front planning and homework, and shop around for the best fit. Ultimately, its up to you to consider and review your personal circumstances to determine which loan is right for your budget and your current financial situation.
For example, youll want to begin by making sure that the loan terms that you are being offered actually fit your financial situation. By way of illustration, if you have a great credit score and minimal equity built up in your home, then a personal loan, despite its higher rates than alternative options, might be the best choice of financing vehicle to help you fund your home improvement projects. On the flip side, if youve instead already built up a substantial amount of equity in your home, then a cash-out refinance or home equity loan could be the better option.
Under any circumstance, make a point to set aside time to research and review your options, and ensure that monthly loan payments and financing terms fit into your budget. The last thing that you want as a real estate borrower is to take out a loan that you cannot afford to repay.
Rocket Mortgage Expert And Consumer Ratings
The JD Power 2021 U.S. Primary Mortgage Origination Satisfaction Survey gave Rocket Mortgage an overall rating of 876 on a 1,000-point scale. This is well above the average industry rating of 851.
In addition, Bills.com compiled data from 10 different expert and consumer information sites. Ratings for Rocket Mortgage were available on nine out of the ten sites surveyed.
Rocket Mortgage earned an average 4.1 out of 5 stars based on this analysis.
This rating is based on a non-scientific sampling of opinions and, therefore, may not precisely reflect a firms capabilities.
Our Verdict: Rocket Mortgage Is Our Choice
Rocket Mortgage and SoFi are both digital lenders boasting a streamlined digital application process and faster-than-normal closing times. But we think Rocket Mortgage has some advantages over its competitor.
Compared to SoFi, you can choose from a much wider range of loans with Rocket Mortgage, including conventional, government-backed and jumbo loans. SoFi only has conventional, jumbo and home equity loans, making it less useful for first-time homebuyers.
Then theres reputation: While both companies have good customer ratings, SoFi was accused of false advertising by the Federal Trade Commission in 2018. The FTC alleged that SoFi significantly inflated the amount a borrower could save by refinancing and in some cases, offered loans that would cost the borrower more in the long run.
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Compare To Other Lenders
|NerdWallet rating NerdWallet’s ratings are determined by our editorial team. The scoring formula takes into account loan types and loan products offered, online conveniences, online mortgage rate information, and the rate spread and origination fee lenders reported in the latest available HMDA data.||NerdWallet rating NerdWallet’s ratings are determined by our editorial team. The scoring formula takes into account loan types and loan products offered, online conveniences, online mortgage rate information, and the rate spread and origination fee lenders reported in the latest available HMDA data.||NerdWallet rating NerdWallet’s ratings are determined by our editorial team. The scoring formula takes into account loan types and loan products offered, online conveniences, online mortgage rate information, and the rate spread and origination fee lenders reported in the latest available HMDA data.|
Purchase, Refinance, Jumbo, Fixed, Adjustable, FHA, VA
Loan types and products
Purchase, Refinance, Jumbo, Fixed, Adjustable, FHA
Loan types and products
Purchase, Refinance, Home Equity, Reverse, Jumbo, Fixed, Adjustable, FHA, VA, USDA
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Is Rocket Mortgage Right For You
At the end of the day, Rocket Mortgage is a reliable option for borrowers who dont want to undertake the typical mortgage application process.
f youd prefer to stay home and apply for home financing online, this streamlined lender offers you flexibility and convenience.
Also, its wide range of mortgage products means that FHA, VA, and USDA loan seekers are welcome to apply via Rocket Mortgage.
If you do decide to apply for a mortgage or mortgage refinancing loan via rocket mortgage, head to their website and begin the process. You can access the application directly from the homepage.
If you want to compare Rocket Mortgage against other lenders, make sure to check out some of the other reviews posted on our website. We cover a broad range of mortgage lenders in the United States.
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What Are The Alternatives To A Heloc
Although taking out a HELOC could be a good idea, its not the best move for everyone. For example, say you want to tap your homes equity to cover a one-time expense. In that case, a home equity loan would probably be a better option.
Another alternative is a cash-out refinance. A cash-out refinance replaces your existing mortgage with a new, larger mortgage. You then pocket the difference in cash, minus any closing costs.
If you dont think tapping your homes equity is the right move for you, consider these alternatives:
- 0% APR credit card: If you have good to excellent credit, you may qualify for a 0% interest credit card. The interest-free period on these cards typically ranges from six to 18 months. As long as you pay your balance in full before the promotional period expires, you can avoid paying interest.
- Personal loan: A personal loan is a fixed-rate installment loan thats usually unsecured, meaning you dont have to pledge any collateral, like a car or a home. Although rates for personal loans are typically higher than HELOCs, you wont risk losing your home if you fail to repay the loan.
- Family loan: A family member may be willing to loan you money at a low or 0% interest rate. If you find a lender, make sure to put the terms of the loan in writing. Repay the loan as promised to avoid harming your relationship.
How Much Equity Are You Allowed To Cash Out Of Your Home
For the most part, lenders will follow the guidelines of one of several major mortgage investors when determining how much you qualify to take out.
Cash-Out Refinancing Requirements For FHA And Conventional Loans
When refinancing an FHA or conventional loan, you have to leave at least 20% equity in your home. So if you plan on doing a cash-out refi, you need to know how much your home is worth to determine whether the amount of equity you have will actually allow you to accomplish your goals after the refinance.
Say youre looking into a cash-out refinance to help fund a renovation project thats going to cost $40,000. Lets assume the value of your home is $400,000. With a conventional or FHA loan, youll have to leave at least 20% equity in your home, which means the absolute most you could borrow is $320,000 .
Because $40,000 is 10% equity on a $400,000 home, you would need at least 30% existing equity. This puts your current mortgage balance at 280,000: 400,000 .
Cash-Out Refinancing Requirements For VA Loans
The one exception to the rule that you have to leave 20% equity in your home is a VA cash-out refinance loan. With a minimum FICO® Score of 580, you must have at least 10% equity left in the home after taking cash out. You can also convert your full equity into cash in a cash-out refi if you have a FICO® Score of at least 620.
Read Also: How Much To Pay Mortgage Off Early
Determine The Costs Of A Cash
One of the biggest factors in determining which loan you should get is how much its going to cost you. When calculating the costs of your financing options, you should take into consideration mortgage interest rates, how much you intend to borrow, and your closing costs.
Calculate The Difference Between A Cash-Out Refi Vs. Home Equity Loan Vs. Home Equity Line Of Credit
When considering cash-out refinancing against a home equity loan or HELOC, youll need to add up not only the interest rates, but the closing costs associated with each loan option.
And if youre leaning toward a home equity loan or HELOC in addition to your primary mortgage, youll need to understand the concept of blended rates. For example, the rate on a home equity loan might be higher than it would be in a cash-out refinance, but the balance might also be smaller, so it changes the calculation.
Lets say the current balance on your $400,000 house is $280,000. If you want to take out $40,000 at an interest rate of 4% your payment would be $1,527.73.
Now lets look at what happens if you take out a home equity loan rather than replacing your existing mortgage with a cash-out refinance.
To figure out the combined interest rate, you multiply each rate by its portion of the balance and add the results together while dividing by the balance totals. Heres what the math looks like:
280,000 * .035 = 9,800
Accessing Your Funds With A Heloc
- You may be given an access card
- An option to transfer funds online to your bank account
- A physical checkbook where you can write checks
- Or a bill pay option to make specific payments
Once your HELOC is open, youll have a variety of options to access the funds up to your pre-determined credit limit.
Most banks and mortgage lenders will provide you with an access card that works kind of like an ATM debit/credit card. You can make purchases with it and/or withdraw cash at a branch location.
You may also be given the option to transfer funds to a linked bank account, or be given checks that can be written to anyone for any purpose, which are deducted from your credit line.
There may be a bill pay option if you want to use the funds to pay bills, or an option to transfer funds over the phone or via mobile banking.
In any case, it should be pretty easy and convenient to access your money.
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Which Is Right For You
If youre deciding between a home equity loan and a HELOC, there are many factors to consider. So, when you decide to borrow, think about what youll be borrowing the money for, how much of your equity you want to tap into, what might happen to your interest rates, your long-term financial goals, and the risks involved. Youll also want to find a lender who can help you learn more and get qualified for a home equity loan or HELOC.
Is Rocket Mortgage Legit
As a borrower, its essential to work with a mortgage broker that you can trust.
Fortunately, Rocket Mortgage is backed by one of the most reputable mortgage lenders in the industry.
Its connection to Quicken Loans is strong evidence that it is a legitimate company, earning its license NMLS ID# 1617539.
To gauge the reputation of this Detroit headquartered company, consider consumer sentiment regarding its parent company, Quicken Loans, who earned the number 1 in customer satisfaction from JD Power and Co.
A glance at the firms Better Business Bureau profile indicates this is a strong performer in terms of consumer protection.
Quicken Loans has an A+ rating, as well as plenty of positive feedback from happy customers.
While there are several complaints hosted on consumer watchdog groups, this is to be expected for any mortgage lender.
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How Do I Determine The Third Business Day
You may get the disclosure and two copies of the right to cancel notice at your closing. In that case, Day One begins after the closing. But if you get the disclosure form and the two copies of the notice before or after the closing, Day One begins on when the last of the three things happened. So if the closing happens on a Friday, and if that was the last thing to happen, you have until midnight on Tuesday to cancel. But if you received your Truth in Lending disclosure form on Thursday and you closed on Friday, but didnt receive two copies of the right to cancel notice until Saturday, you have until midnight on Wednesday to cancel. For cancellation purposes, business days include Saturdays but not Sundays or legal public holidays.
During this three-day waiting period, the lender cannot directly or through another person take action related to the loan. The lender cant deliver the money for the loan , or begin performing services. If youre getting a home improvement loan, the contractor cant deliver any materials or start work. The lender can begin to accrue finance charges during the delay period.
Helocs Vs Home Equity Loans
Is a home equity line or a home equity line of credit right for you when you want to borrow against your home? It depends on your goals.
Home equity loans allow you to borrow a fixed amount and you have a choice of fixed- or variable-rate loans. You can’t just borrow again after getting your initial lump-sum distribution of funds. But you’ll have a predictable payoff timeline and repayment schedule.
HELOCs provide more flexibility, but less certainty, especially if you choose a variable-rate loan.
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So how do we make money? Our partners compensate us. This may influence which products we review and write about , but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services.Here is a list of our partners.
What Is A Home Equity Loan
A home equity loan is similar to a HELOC in that it is a loan that is offered by a lender based on your home equity. Home equity loans also use your home as collateral, so if youre unable to make your monthly payments, you may lose your home.
Home equity loans are fixed, with preset monthly payments with a fixed interest rate. Unlike HELOCs, you are unable to add on loan funds to your home equity loan, so its ideal if you know how much funding you need to the dollar.
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How Does A Second Mortgage Work
The equity you have in your home is a valuable asset, but unlike more liquid assets like cash, it isnt typically something that you can utilize.
A second mortgage, however, allows you to use your homes equity and put it to work. Instead of having that money tied up in your home, its available for expenses you have right now. This can be a help or a hindrance, depending on your financial goals.
Specific requirements for getting approved for a second mortgage will depend on the lender you work with. However, the most basic requirement is that you have some equity built up in your home.
Your lender will likely only allow you to take out a portion of this equity, depending on what your home is worth and your remaining loan balance on your first mortgage, so that you still have a certain amount of equity left in your home .
To be approved for a second mortgage, youll likely need a credit score of at least 620, though individual lender requirements may be higher. Plus, remember that higher scores correlate with better rates. Youll also probably need to have a debt-to-income ratio thats lower than 43%.
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Can You Pay Off A Heloc Early
Yes, you can pay off a HELOC early. There are no associated prepayment penalties with these loans.
The best time to pay off the principal of your loan is during the draw period. You are only required to pay the interest during this time, but paying extra toward your principal as well during this period can help you avoid paying more during the repayment period.
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Who Is A Heloc Best For
Individuals and households who need access to additional funds over the course of many years may wish to procure a home equity line of credit. Similarly, real estate owners who have many home improvement or property upgrades planned may also wish to obtain a HELOC. Under all circumstances though, youll wish to apply only if you are comfortable using your home as collateral with which to secure access to funding.
Home Equity Line Of Credit
A home equity line of credit is a type of second mortgage that allows homeowners to borrow money against the equity theyve built in their home. They function similarly to credit cards in that youre able to access and utilize the funds as you choose up to a certain limit and within a certain time frame. Rocket Mortgage® does not offer HELOCs.
When deciding between a cash-out refi and a HELOC, you may also find yourself considering the differences between a cash-out refinance versus a home equity loan. As opposed to home equity loans which come as a one-time, lump sum of cash HELOCs offer flexibility because you can borrow against your credit line at any time. This makes HELOCs a popular option for an emergency source of funds, as there are no interest charges for untapped funds.
So how does it work? Because its considered a second mortgage, you must remember youre adding another loan to your property, which means an additional monthly mortgage payment to consider. With HELOCs, there are separate periods for borrowing and repayment, although youll make payments on the loan through both periods.
Here are the requirements for approval: