Over 100% Financing For Home Improvements

Though the loan market has become increasingly competitive, this is not the reason why lenders are offering this kind of loans. Equity and the way it generates is the main responsible for these benefits you can obtain through certain cash-out refinance home loans. And the reason for this is rather simple and uncomplicated.

Home Equity Generation Explained

There are mainly two ways how equity generates. One is by the continued repayment of the mortgage loan that reduces the debt guaranteed by the property and thus increases the difference between the property's market value and the overall debt that the property secures (Definition of Equity).

The other one is an increase on the property's market value due to different factors that also increase the difference between the value of the asset and the amount of money it guarantees.

In any case, home equity generation doesn't occur from one day to another, it's a slow process but a continued one. Yet, since equity provides a lot of benefits, it is worth the time it takes.

Home Improvement And Equity Generation

Home improvements tend to increase the value of the property and thus contributes to increasing the available equity on your property. However, the actual increase doesn't take place till the home improvement project is finished and thus, there is no additional available equity on a property till then.

Nevertheless, when a lender is considering approving or denying a cash-out refinance mortgage or a home equity loan, the fact that the money will be used for making home improvements will contribute to increase your chances of approval because the loan will be used to increase the value of the property that will be used as collateral for the loan itself.

Secured Loans for Home Improvements

Thus, whenever you are seeking a secured loan for home improvements it is important that you state to the lender that the money will be used for home improvements. The lender might have special loans designed for home improvements that can provide you funding over the actual value of the property.

This means that you can obtain over 100% financing of the value of the property because the lender knows that as soon as the project is finished, the value of the property will exceed the amount owed and thus, the extra percentage will be reduced to a number equal or below 100% thus dissipating the additional risk.

And that's the reason why more and more lenders are offering home equity loans and refinance home loans with higher loan amounts than the actual market value of the property being used as collateral. The temporary extra risk that the lender is taking will be compensated with a slightly higher interest rate though.