Tina Christein

Homeowners aren’t taking out as many second mortgages, or home equity lines of credit, to pay for remodeling projects, but they’re still finding ways to finance the work, lenders say.

“Demand is slower, and consumer confidence is way off,” said Sandy Hodges, senior vice president of First Volunteer Bank. “The ones who do request it (home equity lines) are finding either it’s not available to them anymore or credit limits are so strict they can’t get approved.”

Credit scores often must be in the mid-700s, Mr. Hodges said, while until recently banks would allow scores in the high-600s or low-700s.

Also, the lender crackdown on credit means homeowners can’t borrow as much against the house’s value as in the past, said Tina Christein, vice president of American Acceptance Mortgage Inc.

Second mortgages typically have adjustable rates, which have received negative attention, she said, because interest rates on such loans have reset at higher amounts, making them unaffordable for many homeowners.

FHA 203(k) loans are gaining in popularity, said Ms. Christein, who also is president of the Tennessee Mortgage Brokers Association. Such loans take the place of an existing mortgage and allow the homeowner to make structural upgrades or cosmetic improvements and roll the costs into the new loan.

Another brokerage, Mortgage Investors Group, is encountering clients wanting to shed their home equity loans, said owner Terre Webb. The company recently has combined several first and second mortgages, she said. However, homeowners seeking to combine loans often can’t afford to use the savings to remodel, she said.

“They’re like giant credit cards,” she said. “They’re not getting them paid off. Most of these people are maxed out.”

Remodelor David Hawke said demand has been steady for home remodeling projects, and two recent clients have used home equity loans to pay for his work. Bathrooms are the most popular remodeling projects, he said.

Mr. Hawke said the typical bathroom remodeling project costs about $15,000, but custom showers can push the cost up to $35,000. Price depends on the project’s complexity and the expense of the materials, he said.

“Most people are putting in granite countertops, and some are doing new cabinets,” Mr. Hawke said. “Most want new showers.”