Do you have a home improvement project you’d like to tackle in the next few months? Are you thinking of renovating a room, adding a garage or updating the overall decor of your home? Is the lack of cash in your savings account the only thing stopping you from making your home makeover come true?

If so, you are not alone as many homeowners find themselves in the same predicament. However, with careful planning and financing from your bank or credit union, you may be able to make your project come true much easier than you imagine.

According to Mark Samson, senior vice president and senior retail banking manager for Mechanics Savings Bank, there’s good news and bad news in the current economy.

“The good news is that interest rates are at their lowest in years and financial institutions are eager to make loans to qualified applicants,” said Samson. “The bad news is that in the economic downturn home values have dropped significantly and a lack of equity in your home may affect how much you can borrow and/or the rate that you will pay.”

Kerry Wood, executive vice president at Community Credit Union, agrees that loan applicants should be cautious.

“Don’t forget that the collateral that you are putting up against the loan is your own house. If you can’t make the payments and make them on time, you could end up losing your home,” warned Wood. “You borrowed money for the sole purpose of improving your house and losing your house would be a disastrous situation.”

According to Matt Delameter, loan originator for Northeast Bank, there are a few important steps to take even before sitting down with a lender.

“Determine what you are trying to accomplish for home improvements and obtain estimates for the work to be done,” advised Delameter, indicating that a project plan and budget are essential. “You should also gather key financial information including W-2 records, pay stubs and bank statements [when seeking financing].”

Homeowners should estimate the value of their home and see if they can qualify for a home equity loan or line of credit, two of the more popular choices available. These choices are generally less expensive than a home improvement loan. 

“You can typically borrow 80 to 85 percent of the value of your home,” noted Samson. Appraised value of the home x .85 – first mortgage amount = equity available to borrow. “Home improvement loans can be either secured or unsecured depending on the products offered at the financial institution.”

Typically, total debt on your home should not exceed 30 percent of your gross income. If you earn $3,000 per month, your mortgage payment, taxes, insurance and home improvement loan or equity loan payment should not exceed $900.

“Consult your local lender to determine the best financing program for you,” advised Delameter. “They can help you understand what monthly payment you can afford and the loan process requirements.”

And even before calling or taking a trip to the bank, Samson recommends that homeowners check with their local building code officer and make sure there are no restrictions or potential permitting problems with the home improvement they have in mind.

“Find out what they will require for documentation,” said Samson. Too often, even the best of plans can be delayed if permitting or regulations about the project are not in place.

A loan referral website www.homeimprovementfinancing.com, warns of five major pitfalls that homeowners encounter when considering home improvement projects. Bottom line: Plan your project wisely.

Choosing cost over quality.  Choosing cost over quality will catch up with you in the long-run, as cheaply-made materials will quickly wear out. Scale back your improvements if you have to, but use quality products.

Disregarding the present architectural style of your home. No matter how great your improvements are, they will look awkward and out-of-place if they don’t mesh well with your home’s current architecture.

Doing what the neighbors do. Many people fall into the trap of selecting home improvements simply because everyone else has them. Make improvements according to your own style and tastes, not your neighbor’s.

Throwing out the basics. It’s easy to get swept up in home improvement financing to the point where you forget about the basic functions of a home. For example, some people forget about essential issues like storage and maintenance when remodeling.

Designing your project around your fantasy life. The things for which we’d like to use our home and those for which we actually do are sometimes very different. For example, perhaps you want to throw grand, elegant dinner parties every weekend. But, in reality, you and your family most often dine around the breakfast bar. In this case, it would make more sense to redesign or add to your kitchen than to add a lavish dining room.

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