The largest room in this world is the room for improvement. Upgrading every facet of life is as important as life itself. We all want to improve ourselves, our home, our business, our health, and our spirituality. This is the basis of goal setting in action. The best time to plant an oak tree was probably 20 years ago, but the next best time is today. In the same vein, the best time to improve your home was probably last year, but due to a bad credit score, you painfully procrastinated and that often leads to negligence due to fear. Today is your “Independence Day” as you learn the unique steps on how to improve your household even if you have the worst credit history in Quebec; provided you read this report from start to finish.
There are many programs that homeowners can qualify for to upgrade their home. A huge proportion of Canadian homeowners believes that they’re only qualified for a loan if they use the equity that’s already built up in their portfolio. However, the reverse is also true. There are plenty of home improvement loans for owners with no available equity. Nearly a third of homeowners in Quebec have negative equity in their homes. This means that the homeowner owes more than the value of their home. In short, just because there’s no equity in a home doesn’t mean improvement is impossible. There are many ways to cushion the effect.
Getting the Right Definition
Home improvement loans are funds offered by lenders to borrowers whose intent is to use it for some sort of renovation for which they lack the funds to execute.
There’re two main types:
1. Installment Loans
2. Revolving Loans
As the name implies, installment loans are dispersed to borrowers to fund a project and are often large lump sums. The borrower then makes payments by cutting out a fraction of their income, strategically, until it’s paid off in full. On the other hand, with a revolving loan (or a “line of credit,”) borrowers take some amount they need when the need arises, up to credit limit. Then, they can borrow more later if necessary.
The FICO Credit Score
Ignorance begets fear; knowledge removes the fear. First and foremost, a proper understanding of your credit score will help you get a home improvement loan with bad credit. You need to know what your credit score is in number terms, what credit scores actually mean and what they mean to you, personally. This is easier than you think! In its basic term, FICO is an acronym for the Fair Isaac Corporation. The three-number score it generates is a bit more complex; it’s a formula that checks many factors of your financial life. It boils down to your ASSET & DEBT ratio i.e. how much you own by how much you owe with your payment history on past account. Deterrents to your credit score are mainly late payments, defaults, bankruptcies, and foreclosures.
Before going ahead with a home improvement loan, you should personally access your credit score through a review of your full credit report. This report will outline all the factors that the FICO system uses to determine your score and allows you to check for any discrepancies. The reason for doing this is to save yourself the hurdles of a lender reviewing your credit score before granting the loan. The best rates always favor individuals with good credit scores, so the more you know beforehand, the better.
Getting the Best Home Equity Loans
The federal trade commission (FTC) encourages borrowers with poor credit to compare quotes and negotiate with lenders. Getting multiple quotes from different lenders helps consumer narrow down their options and decide who they might want to work with. By doing this, homeowners can examine the interest rates and fees that vary among institutions. There are two ways of going about this:
#1. Check with current lenders: many borrowers look first for loans with their current lender. It’s often a good idea for two reasons; first, sticking with your lender reduces the complexities involved in the process, and secondly, in most cases, a better deal can be negotiated. Your current lender is like a family doctor or lawyer that’s already aware of your financial details. Getting approval will be very easy because they are more like a friend who knows what’s affordable or not – and will usually offer the best advice.
#2. Use the Internet to get the best deal: if on the other hand, a compromise cannot be reached due to one challenge or another, the second-best idea is to research the best lenders before making an approach. Only then can the applicant be sure they are making the right decision. The internet is free and easy; it connects us all, and research options are widely available. A good idea is to shortlist the best 5 companies based on your own discretion. Then you can start the negotiation process and get the best deal.
Tips for Getting an Approval & an Alternative for Those Who May Not Qualify
A) Understand the Procedure: Home improvement loans are issued in order to improve a residence. The loan is always for a shorter term than home refinancing, which creates a line of credit. In understanding this process, the equity of your home serves as collateral, and the borrower’s financial situation determines the terms and conditions.
B) Ensure That You Have Enough Equity: In its basic term, equity is calculated by subtracting the home’s value from the mortgage balance. A borrower can reduce the value of their loan early if prompt payments are continuously made. If the value of your home increases, substantial equity can be easily generated.
C) Financial Stability: Not all home improvement loans come with a credit check, as opposed to the FICO analysis described above, because of the security provided by the home’s equity. However, having good credit history always helps when applying because the borrowers must bear in mind that they’ll have a loan payment in addition to their pre-existing mortgage expense. Therefore, their income should be such as to convince the lender that they can afford to pay both.
D) Know the Project: Those who know where they’re going swiftly get there fastest. To get an approval from a lender, the borrower must fully understand the project at hand. This will ensure conviction on the part of the lender to accomplish the task at hand. Home improvement loans can be used to upgrade your home, update your landscaping, improve your kitchen cabinets or many other value adding projects.
E) Examine Your Credit Report: Get a copy of your credit report through one of the major credit bureaus to be confident that no problems will arise after the acquisition. If, however, there is a mistake in your credit report, this might be corrected by sending a letter to the bureau that issued the report. Correcting this kind of error early on can boost your score and help you obtain a lower rate.
F) Get A Co-Signer: In an exceptional case where you don’t want to use your home as collateral, you can get someone to act as GUARANTOR to co-sign your home improvement loan. The details must be clearly explained to him/her so they know the task behind it – which means your co-signer will be held accountable for any repayment from the financial loan in an event that you default on your payment.
G) Think About Repayment: Before signing up for any property improvement loan, contemplate diligently how much of your income will be going to the lender and how long this is going to happen for. Also, make sure you submit your monthly mortgage payment punctually to avoid higher penalty fees. Then make sure that you only borrow the amount needed for the house renovation and that you have the ability to repay it.
H) If Possible, Negotiate to Get a Decreased Charge: No matter your credit score, negotiation is inevitable in every transaction. You need to negotiate the ability to get a decreased rate from financial institutions, especially if you’ve already improved your credit worthiness in the past few years after shopping for the best rate. Who knows if the price is just an assumed amount a buyer/borrower can pay. There’s no end to the negotiation process.
Getting home improvement loans in Canada is easier than you think. The information provided will help you get the best deals the market can offer. Remember, you are not rewarded for what you know but for what you do and it’s not enough to have a brain; you need to use it too. Make sure it’s “turned on” while negotiating!