If you don’t have any equity or extra value in your home, but you need to upgrade or perform some improvements around your house, then you may be able to get a no equity improvement loan from a number of different sources.
These no equity home improvement loans are a growing segment of the loan market ever since housing prices started to tumble. First, lets explain how equity and home improvement loans work.
If you’ve been paying attention to the news then you’ve heard a few conflicting reports about what is happening in the home improvement and financial markets. Here’s a quick explanation and analysis of what they could mean for you if you’re thinking about looking into a home improvement loan in the next several months:
International home improvement giant The Home Depot announced that they will be closing some of its stores and laying off nearly 7,000 employees. This sounds like awful news until you look a little further: the stores that The Home Depot will be closing consist of 34 Expo Design Center stores, 5 YardBIRDS stores, two Design Center stores and seven HD Bath stores. Those are all specialty stores with a lot of competition from local and smaller vendors. The Home Depot admitted that their Expo centers weren’t even doing well when the economy was good and there was a strong housing market. All the specialty stores affected will go into liquidation starting today, so there are some great home improvement deals to be found!
While the loss of jobs in the home improvement industry is never good, the recent cuts by The Home Depot show that their core business: discounted and affordable DIY home improvement supplies are still relatively strong because The Home Depot is not planning to cut any of those stores. This means that, essentially, home improvements are still a profitable and growing business and it means your Home Depot Credit Card can probably buy even more things for less money.
Our second bit of “bad news” comes from a report which says that housing sale prices dropped 9.3% to $198,600 in 2008. The prices haven’t been that low since 2004. This sounds like bad news until you hear that sales of existing homes actually rose 6.5% in December, which is traditionally a slow month for home sales anyway.
What does all this mean? It means that while existing homes did lose some of their value in 2008, the latest December numbers show that there is plenty of housing credit now available and it means that plenty of people are still borrowing money to buy homes. Because these are existing homes, a lot of that borrowed money will obviously be used to improve, customize or otherwise upgrade those homes. All in all it means that the credit market for small home improvement loans is clearly thawing and moving again.
Overall, if you bought your home before 2004 and if you’re looking for some good ways to stretch the money from a recent home improvement loan a little further, then this is all pretty good news for you. If you aren’t in one of those situations, then hang in there, the financial loan markets are opening up slowly. Your best bet for borrowing money to remodel or add on to your home may still lie in borrowing money from a local bank that hasn’t been negatively affected by some of the larger financial institution failings.
If you’ve ever looked into getting any sort of loan for a mortgage or home improvement project you’ve probably heard talk about the Federal Reserve rate and how you may want to wait or move at a specific moment. But what does all this really mean? How can some big government institution like the Federal Reserve actually affect the rate of a home remodeling loan that you might apply for?
The Federal Reserve Board is government organization which does a number of important things, but one of the most high-profile monetary tasks of the Federal Reserve is to, in it’s words:
Open market operations–purchases and sales of U.S. Treasury and federal agency securities–are the Federal Reserve’s principal tool for implementing monetary policy… The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.
Essentially, the Federal Reserve controls the rate at which banks and other lending institutions can borrow money themselves. Banks and other financial institutions that lend money for mortgages, home equity, and home improvement loans can then adjust the loans they sell up or down so that they can still make money.
Here’s an over-simplified example: if a bank can borrow $10,000 at 4.00% interest then they might be willing to offer you a $10,000 loan for a home remodel at 6.00% interest. As you repay the loan at 6.00% the bank would take the extra you paid, keep it as profit, and pay back the 4.00% on the loan. Essentially, the bank you borrowed money from is like a retail store with money: it “buys” money at 4.00% and it sells it to you at 6.00%.
This means that when the Federal Reserve rate is low you, as a home owning consumer, usually get better mortgage, home equity and home improvement loan rates. Of course, banks also have to worry about other things like loan default rates, paying employees, other market investments it may have and a variety of other things, so the rate at which they offer a home remodeling loan may fluctuate a fair bit from one day to the next.
Generally, when the Federal Reserve Board lowers rates most consumer loan rates, including home equity and home improvement loan rates, drop down a little bit. Likewise, when the Federal Reserve Board raises rates, loan rates go up.
Right now the Federal Reserve rate is at a historic low, which is just one of the many reasons why it’s a good time to get a home improvement loan.
It’s also important to note that the change in rates is not always immediate. Most experts in the financial industry say that it takes at least a week or two for banks to begin properly adjusting their rates and gauging market conditions before you may see the rates on things like mortgages and home improvement loans go up or down.
Obviously, your credit score, income and current home value will also play a part in whether or not you can get a good rate on a home improvement loan. The best way to find out more is to use a free home improvement loan calculator that can give you all the rates and details that apply to your specific financial circumstances.