Home improvements can add immense value to a home. Whether you plan on selling or staying, they are an investment worth making. But home improvements can be expensive. Some more complicated projects like roofing, major demolition, and construction can be expensive. But many experts say it’s worth it. A kitchen remodel that costs $68,490 can get homeowners $40,127, which is almost 59%. In fact, studies show you will recoup between 54% to 77% of what you spend. While the initial cost may seem daunting, there are ways to budget for your remodeling dreams.
1. Home Equity Loans
A popular option when looking to acquire a large sum of money is a loan. While there are various types of loans you can take out, like a personal loan, for example, many recommend looking at a home equity loan. Home equity loans are often known as second mortgages. While the interest rates may be a bit higher than your first mortgage, they may also be tax-deductible. This type of loan is for those who have at least 20% equity in their home. The amount of the loan is based on the equity you have available. The loan is calculated to be the difference in the value of your home and what you still owe. Typically the average fixed rate for these loans is 15 years. Generally, home equity loans are recommended because by making the renovations you’re increasing the overall value of the home. Thus, increasing the final sale price. A word to the wise, home equity loans do come with serious consequences if you’re unable to make the payments. Because you used your home as collateral, you risk foreclosure if you do not pay. This type of information is not that easy to understand, so it's essential to have a professional that can give you answers to some questions, like is a reverse mortgage a scam?
2. Refinancing
Refinancing in general refers to the process of replacing the terms of an existing finance agreement. If you plan on making home renovations that come with hefty price tags, refinancing maybe your best option. Similar to home equity loans, you will be using the equity you have already invested in your home. By doing a cash-out refinance, your old loan is replaced with a new loan that covers more than you owe on the house, your mortgage gets paid, and the costs of the renovations are covered. To refinance you have to be approved. This often happens through a house appraisal process where lenders can see the current market value of your home. Experts recommend waiting on securing the refinance before starting renovations. A half-demolished home won’t appraise as well as one intact.
3. Start a Fund
If refinancing or loans aren’t viable options for you, consider starting a home improvement fund. While this may seem obvious, having a sum saved money to cover the costs of improvements is the lowest-consequence method. Many people use their savings to pay for home improvements. This option is generally for those who aren’t in a hurry to make improvements and have time to properly save their income. The budgeting route is also generally reserved for renovations that provide mostly aesthetic upgrades. If you have an issue in your home that requires immediate attention, like mold growth or leaking pipes, waiting to save may do more harm than good. Home issues like these can compound. What was once a pricier, immediate repair, can become a grossly expensive, massive repair. Options for saving include automated monthly deductions that go straight into a savings account, planned savings from side jobs, or even an old-fashioned cash jar.
4. Grants
An option that many don’t think to consider is applying for a grant. Government agencies and non-profit groups offer grant payments that you can use for home repairs and upgrades. Grants are less reliable than home loans, as they vary in availability by location and year by year. But some people have found access in applying. Each grant has its own set of restrictions and requirements to apply. Generally, the grant program looks at the type of home you have and your income. The four most common types of grant programs are HIP Loans, historic preservation, disability assistance, energy efficiency. HIP loans stand for home improvement program loans. These are subsidized loans that offer lower interest rates and unsubsidized loans. Historic preservation grants apply to homes in historic districts. The idea is to preserve historical buildings, so there might be limits to the types of renovations that can be done. Energy efficiency grants are made to incentivize homeowners to upgrade to better insulation, high-efficiency heating and cooling systems, and other renovations that can improve the house’s overall energy efficiency.
Bottom Line
If you’re looking to increase the overall market value, upgrade the curb appeal, or improve the efficiency of your home, home renovations are worth the investment. Not many can afford to jump into renovations with their current economic situation. Loans, refinancing, budgeting, and grants are just a few options to spread out the costs. While the initial price tag can be expensive, the return on investment tends to be much higher.
