A Guide to Home Improvement Loans and Grants in California

by on January 2, 2013The Realestate.com Team

You’ve been living in your home for close to a decade, and you want to spice things up a bit. Maybe you are considering replacing the discolored tiles in the bathroom or transforming your kitchen into a chef’s paradise.

The changes will not just uplift your mood, but can also increase home value. Giving your kitchen a facelift, boosting curb appeal, or getting a new pedestal sink for your bathroom are just a few ideas. Avoid investing in areas such as a brand new swimming pool, which may add value to your lifestyle, but not to your home.

home improvement loans and grants california“It all depends on the location of your home,” said Chris Goulart, owner and loan agent of All California Lending. “Kitchen and bathroom upgrades are where you get the largest returns on your money dollar for dollar.”

Once you’ve identified the upgrades, start researching available funding.

In California, homeowners have a lot of options to choose from. The positive aspect of home improvement loans is that you don’t require any equity to apply for funds, and mortgage interest on them is typically tax deductible. They are also very affordable because you can extend your payment plans anywhere from a decade to 25 years.

Checklist for Home Improvement Projects:

1. Find out if you need permits.

2. Estimate the return on investment: Do your research and check with a local real estate agent to find out if the changes you are about to make will yield returns later.

3. Find a reliable contractor: Get references from friends and family and interview a couple of contractors before picking someone. Run the contractor’s name through the California Contractor’s State License Board.

4. Plan your project: Calculate cost of labor, permits, materials and time. Make sure your loan has contingency funds in case the project gets extended.

Home Improvement Loans and Grants in California

Federal Housing Administration:

If the upgrades you are making meet certain FHA standards, you may qualify for agency insured loans through private lenders. All you need is a good credit history and evidence that you can make monthly payments. Single-family home improvement loans can be used for alterations, repairs and site improvements, according to the U.S. Department of Housing and Urban Development.

The loan limit on single-family homes is $25,000 with a loan repayment period of 20 years.

FHA is not the cheapest financing option unless you want to embark on a big project, said Karl Miller, vice president of Mortgage Capital in Los Angeles. It’s worth considering if you already have an FHA loan or if you are looking into buying a home and know what upgrades you want on the new home, Miller said. But, if you already have decent financing on your home, strongly consider before getting into an FHA loan, he said.

Home Equity Line of Credit:

You could also dip into your home equity for credit. The only catch with this type of loan is you have to use your home as collateral, and the consequences are severe if you are late or miss monthly payments. Also, if you decide to sell your home, you have to clear up your credit line.

Equity lines were a rage until the housing market bust, Miller said. “Lenders were giving away loans like they were candy,” he said. “But, now they ask a lot more questions, and the equity line offered these days is 75 to 80 percent loan to value.”

Private Lending: 

These loans are based on the value of your property, Goulart said. So, the loans are not based on your credit history, but what your home equity can secure.

“Because of the nature of these loans, people usually come to me when they can’t get conventional funding,” Goulart said.

The loans are short-term with a repayment period ranging from one to three years. All that the homeowner needs is proof that he can make monthly payments.

Combo Loans:

You might also explore combo loans, which would allow you to consolidate your debt and fund your home improvement project while leaving you with some extra cash. This loan is not tied to equity and is like a second mortgage.

California Veterans Loan: 

If you already have a California Veterans loan, you could qualify for a CalVet Home Improvement Loan. The maximum loan limit is $150,000, and there’s up to 90 percent loan to improved value on the home. Loan term can be up to 25 years. You cannot use these loans for recreational or entertainment additions to your property, such as a new swimming pool, sauna or tennis courts.

Other Private Funding:

If you have a project such as installing solar panels or anything else that conserves energy or is environmental friendly, you could apply for grants and funds from private companies. Talk to your local power provider, which can connect you with approved contractors and funded projects. Some of the larger companies have their own funding sources, Miller said.

{ 4 comments… read them below or add one }

Martin Cully September 24, 2013 at 7:11 am

Great delivery. Sound arguments. Keep up the amazing spirit.|

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Sunday March 14, 2013 at 12:43 am

Indeed Californians have various options when it comes to home improvement loans. This post has highlighted the common option out there. However, it does seem like the Government funding options are better for low income earners than private lenders. This seem to be the American Reality!

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Vasilli Entsief January 10, 2013 at 3:38 pm

Hi there,
I’m American who is based in Australia for years & I have never bought any property in America. I’m interested in purchasing a property in California with a budget of $150K house. I would like to know how much/percentage of deposit that I need to put down if I would like to buy a house that is $150K & is there any fee (taxes, lawyer & etc) on top of deposit that I should know too? Besides that, may I know what is the options of bank loans that I’m eligible please? Thanks.

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Shannon O'Brien January 10, 2013 at 4:45 pm

Hi Vasilli,

The amount of down payment required depends on the type of loan you get. FHA loans have lower down payment requirements, VA loans have no down payment requirement and traditional loans are typically about 20 percent of the purchase price.

Closing costs are fees that you pay at closing and could run you 2 to 5 percent of the sales price of the home. From what I remember when I sold real estate, they averaged about 3 percent, but your “mileage” may vary.

The only person who can give you advice on what loan options you qualify for is a mortgage broker or lender. I suggest that you do some research first on where in California they have homes in your price range and then contact a mortgage broker in the area you choose. Don’t forget to contact a real estate agent too – the agent’s services cost you nothing and, because you aren’t local – his or her services are invaluable.

Good luck!

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