Construction Loan vs. Renovation Loan
6/23/2023
There are a lot of different types of loans that exist when it comes to construction on a home. Whether you’re building a completely new home or renovating an existing one, some loans are better suited for specific types of projects than others. Without guidance on types of loans, determining the best loan option for your needs can be difficult.
Construction and renovation loans are often talked about similarly. While they can be used for similar purposes, there are certain types of projects for which each type of loan is better suited. We’ve broken down the major differences of construction vs. renovation loans to help you find the best loan option for your project.
Arkansas Federal Credit Union offers a variety of loan options to help you find a loan that best fits your needs. With most of our loan options, you can easily apply online. For more information on the different types of loans we offer, you can visit our website or one of our local branches today.
Renovation Loan vs. Construction Loan
Understanding the details of specific types of loans is important to find the right loan for your needs. At every financial institution, types of loans have different requirements and benefits. We’ve broken down the basics of Arkansas Federal renovation and construction loans.
Renovation Loan
Home renovation loans, or as we call them at Arkansas Federal, home improvement loans, can be used to finance home renovations, repairs, and remodels. This is a good option if your home needs significant renovations or if you want to make changes to your home. Renovations could be as minor as updating a kitchen or bathroom or as significant as adding a new addition to your home.
Construction Loan
A construction loan is a short-term loan that can be used to finance building a new home. Construction loan rates are sometimes higher than the rates of other loans because they are typically considered to be riskier by lenders. This loan can be used for any costs associated with building a home, from purchasing the land to landscaping. After the construction is complete, the loan is either refinanced or converted into a permanent loan/ mortgage.
What to Consider
Taking out any sort of loan can impact your credit and leave you with a loan that you have to make payments on. Before committing to a specific type of loan, it’s important that you consider everything involved with the loan and whether or not it’s the best option for you.
Home Improvement Loans
Renovating your home is a major commitment that can disrupt your life for a period of time while also costing you a considerable amount of money. Before you decide to renovate your home, it’s a good idea to consider if it’s the right time to renovate your home, if the renovations will increase the value of your home or your quality of life, and if you can afford the cost of renovations.
Construction Loans
When you’re considering taking out a construction loan, it’s important that you’ve thought through the timeline of your loan and the build. Building a home is not a fast process, and it could take many months before you are able to live in the home that you’re paying for. You should also be sure that it makes more sense for you to build a home rather than purchase an existing one. Once you’ve begun the construction process, it could be difficult for you to break even on your investment if you decide that construction isn’t the right choice for you.
How to Get a Loan
The process of getting approved for a loan is similar across different types of loans, but there are a few crucial differences in applying for construction and renovation loans.
Renovation Loans
Arkansas Federal home improvement loans allow you to get prequalified so you can start talking to general contractors quickly and easily with approval in hand. You can apply online today and get prequalified for up to $50,000. You can get a home improvement loan for any size project, big or small, with our loan amounts ranging from $5,000 to $50,000. We don’t require any collateral for home improvement loans, meaning no appraisal is required before you can access your funds. We pride ourselves on having fixed-rate, affordable monthly payments with flexible loan terms.
Construction Loans
You can easily apply online for a construction loan today. With an Arkansas Federal construction loan, you’ll only have to pay for one loan application and one closing cost, which can help you save money and time. Our construction loan applications require you to provide your credit information, income history, and assets documentation. Once approved, you can lock in your interest rate for up to 90 days before closing. Our loan calculator can help you estimate your monthly payments, including homeowners insurance and HOA dues.
Apply for a Loan Today
The different types of loans available for home construction and renovation projects can be overwhelming. If this is your first time dealing with a loan like this, it can be difficult to determine what type of loan is best suited for the project you have in mind.
Arkansas Federal is here to help you find the best loan for your needs. If you have more questions about the types of loans and how they fit into your personal needs, you can talk to one of our experts over the phone at 800-456-3000 or visit your local branch today. If you are ready to apply for a loan, it’s easy to fill out an application online from wherever you are.
