By Scott Staudt

 The real estate market is still suffering, and so anyone who is thinking about selling and moving up to a better house better think twice about it. A better solution at this point is more likely to improve the house you have and a new opportunity for home improvement loans has come about with peer to peer loans.


Investing in your home is still one of the best investments you can make, and if you perform wise home improvements, you are fairly certain you will recover that investment over the long run. New kitchens and bathrooms, additions such as an extra bedroom or family room have long proven to be wise investments over time.

But today's home lending market has made it more difficult 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 new chance to borrow may be the peer to peer loan.

Most home improvement loans have been financed by banks or other financial entities. But if your home 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.

Just think about where the funds banks have to finance loans come from. Depositors give the banks the funds to give to borrowers. If there were a way that those depositors could give those funds directly to the homeowner, in theory, everyone would gain.

Bank deposits today are barely earning about 1% in annual interest rates. Nevertheless, banks are still charging more than 10% for a home improvement loan. Where does the rate difference go? Right in the pockets of the lenders, that's where. This is one of the main purposes of peer to peer financing, to get rid of this expensive middle man. An investor can significantly improve his rate of return by making a home improvement loan right to a borrower. The borrower, in turn, will be quoted a better rate because there is no bank in the middle to take all of the profit.

This kind of investment is very attractive to investors since they can spread their risk out over a lot of different borrowers (this is a unique feature of peer to peer lending) and decide upon the individual level of risk they want to take. Borrowers also have this numerical advantage since many investors are now competing to lend them money.

Most peer to peer lending is structured as part of an online site that works in a manner that is like Ebay or other auction sites, where buyers and sellers bid on goods. The investors have the option of viewing all of the potential borrowers and choosing the one they want to lend to. Many investors have a real interest in investing in home improvement loans, and so this opens up a wide choice of borrowing options for those who are planning on making home improvements.

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