In today’s savings-centric society, consumers cautious about expensive loans might still need access to unsecured financing. A new wave of homeowners boosted by federal incentives are moving into their homes, and unsecured personal loans for home improvements are a financing solution for equity-cautious borrowers with upfront cash needs.
“Many people have taken advantage of this great time to buy homes with as little as 3% cash down,” says national credit union consultant Chris Oldag. “Those first-time buyers have often identified improvements that exceed their immediate available cash on hand.”
Real estate owned and distressed property made up nearly 35% of home sales in February and March, according to the National Association of Realtors. For buyers looking for a deal, many of those closings may have come at the price of maintenance or necessary home repairs.
“They [homeowners] are ideally positioned to use a credit union’s low-cost, unsecured loan for a new deck, appliances, garage doors and opener, roof, fence, poured patio, hardwood floors, or a house full of carpet,” says Oldag.
A recent American Express survey reveals 62% of homeowners have home improvement projects like this planned for 2010. The average price tag for planned projects totals $6,200; projects among “affluent” homeowners almost doubles that dollar amount. In addition, 43% of homeowners say they will use green materials for improvements.
Utilizing discounts or rebates to facilitate green home improvement financing gives credit unions a branding opportunity for their unsecured offerings. Boosts in national sales in energy efficient appliances, solar panels, and other green improvements show discount and tax incentives can entice even long-term homeowners. According to the LA Times, high demand for government-sponsored “Cash for Appliances” programs in Florida and Iowa depleted funds within days, even hours, of the programs’ launches.
Although many homeowners are planning projects, only 9% of those surveyed in the American Express study indicated they would use home equity to fund improvements. Some homeowners may still associate multiple liens with unfavorable outcomes, as equity utilized for multiple side projects added an additional pull to already sinking housing costs during the recession.
In addition, home equity used for non housing-related costs can be taxed if lenders eventually forgive the debt or foreclose on the house, hitting struggling borrowers with a painful and unexpected tax burden. Unsecured financing allows members without the ability to pay up-front to finance these projects without using credit cards and without risking their new home's equity.
According to Oldag, an unsecured installment loan helps homeowners build their credit scores as well as turn their house into a home. At 12.9%, a $5,000 loan financed over three years has a monthly payment of only $168 a month.
“This small payment is manageable and should become the leading offer,” Oldag says.