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DEMYSTIFYING CREDIT OFFERS:

If you have a loan application denied, you are entitled by law to receive a written explanation as to why from the lender.

Financing home improvements: Deciphering loans from lines of credit

For most Americans, financing even minor home improvements out-of-pocket is not possible. This means that financial institutions are backing a great deal of the more than $100 billion people are putting into their homes every year.

Among the most popular way people finance these improvements are through home equity loans, home equity lines of credit and credit cards.

Home equity is the value of a home minus any mortgages or liens owed on the property. A home equity loan provides a fixed loan amount that the borrower repays in equal payments over a fixed period of time. Home equity loans are generally considered stable and are ideal for financing projects or events that have a predictable cost.

A home equity line of credit (HELOC) is more flexible and provides cash as needed at various points over time. As the loan is repaid, more funds become available and the line is replenished, much like a credit card (for more on the difference between credit cards and lines of credit, see the sidebar). This makes a line of credit ideal for homeowners who plan to use borrowed funds for home improvements they will make themselves or over a period of years.

The bottom line is that no matter how you pay for your home improvement, you should always be mindful of selecting projects that improve the value of your house, because not only is your home the roof over your head, it is also an investment in your future.

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