Q: How Can I Finance Work Needed for Home Repairs?

A: According to the Millennial Housing Commission created by Congress, few lenders are willing to administer home improvement loans. Most prefer to make home equity loans or unsecured (personal) consumer loans because they are easier to manage. Home improvement loans usually require detailed estimates, inspections and irregular draws on the loan amount as work is completed, which forces regional or national lenders to find local partners to provide oversight.

Financing repairs and improvements with home equity is okay for most homeowners, but it difficult for many first-time buyers. They have lower-incomes, smaller savings, and have made lower down payments on their homes than first-time buyers a decade ago. So they have little equity to borrow against. Unfortunately, it is often lower cost older homes purchased by first-time buyers that need the most work.

Unless you have a cash reserve, you will have to shop around for the best borrowing terms. In addition to the options listed above, you can ask relatives for a loan. Borrow against your whole life insurance policy. Refinance your existing mortgage. Get a second mortgage. Contact the government about home improvement programs.

There is however, a fantastic option available for Home Buyers. It’s called the 401K and the cost for repairs and improvements is included in the final loan amount. Payments are made directly to contractors/vendors when work is completed. There is substantial paperwork involved but with the right guidance from your Loan Officer this can be a hassle-free and worthwhile option, not to mention the instant equity you may gain by having a fully livable, upgraded home.