A Unique Opportunity for Home Improvement Loans - By: Scott Staudt

The real estate market is still in the doldrums, and so anyone who is thinking about selling and moving up to a better house better think twice about it. Many homeowners should therefore consider improving the home they live in, and a new opportunity for home improvement loans is available with peer to peer lending.

Investing in your home is still one of the best investments you can make, and if you have wise home improvements, you are fairly certain you will recover that investment over the long run. A new roof, a new kitchen, or even just new appliances for your current kitchen, can increase the value while making life better while you live in the home.

But today's housing lending market has made it harder to secure the financing for these improvements, since lower real estate values have meant that there is not as much equity in the home to borrow against, and do homeowners have to seek new opportunities. This opportunity is called peer to peer, or person to person loans.

Most home improvement loans have been funded by banks or other financial entities. But if your house has very little or even negative equity because of the recent real estate slide, you may not be in a position to secure a traditional bank loan.

But where do banks and other lenders get their money to lend to homeowners in the first place? They obtain the money from their depositors, that's where. What if there were some way that those lenders could give the loan directly to the borrower who wants to make some improvements in his home?

Many people deposit their excess cash in a bank, but deposit interest rates can be as low as 1% today. Banks, however, still lend to borrowers at rates that are in the teens. Where does the difference in these rates go? The banks keep this difference as profit. This is the reason peer to peer financing is gaining popularity. Investors can lend to borrowers at rates significantly higher than 1%. The borrower, on the other hand, will be quoted a better rate because there is no financial intermediary in the middle to make all of the profit.

Investors have the added benefit of spreading their risk, since they have the option to lend sums of money in smaller increments to many borrowers. Borrowers also have this advantage of numbers since many investors are now competing to lend them money.

The mechanism used to manage peer to peer loans is an auction site similar to Ebay but it is loans being bought and sold, not goods. The investors have the option of seeing all of the potential borrowers and choosing the one they want to lend to. Lenders even have the choice of knowing the purpose of the loan, so they can specifically choose home improvement loans if that is what they prefer to invest in, which is an added feature that makes the program attractive for both investors and borrowers.

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