Home remodeling projects can breathe new life into your living space, increase your home’s value, and cater to your changing needs. However, such projects often come with a hefty price tag, which can leave homeowners wondering about financing options. One versatile and convenient method to finance a home remodel to use a line of credit. Let’s explore the benefits of financing your home remodel with a line of credit.
Understanding Lines of Credit:
A line of credit is a flexible financial tool that allows you to borrow money up to a predetermined limit. You can withdraw funds as needed, pay interest only on the amount you’ve borrowed, and repay the balance over time. There are two common types of lines of credit used for home remodeling: Home Equity Line of Credit (HELOC) and Personal Line of Credit.
Home Equity Credit Line (HELOC):
The HELOC loan are a popular choice for financing home renovations. They are secured by the equity in your home, which is the difference between your home’s market value and the outstanding mortgage balance. Here’s how to make the most of an equity line of credit:
Assess Your Equity: Calculate the available equity in your home. Most lenders will allow you to borrow up to 80-85% of your home’s value, minus the remaining mortgage balance. This is the maximum credit line you can obtain.
Compare Lending companies: Shop around for lenders who offer HELOCs. Consider factors like interest rates, terms, and fees.
Apply for HELOC: Submit an application to lenders that have a track record with credit lines. They will assess your creditworthiness, income, and the value of your property.
Use Funds Wisely: Once approved for a home improvement loan, you can access funds as you need them for your home remodel. Make sure to keep your spending in check.
Repayment: With a home equity line, you’ll make interest-only payments during the draw period, which typically lasts ten years. After this period, you’ll enter the repayment phase, where you’ll pay both principal and interest.
Personal Line of Credit:
A Personal Line of Credit is an unsecured line of credit that doesn’t require collateral. Here’s how you can utilize this financing option:
Review Your Credit: Start by checking your credit score, as it plays a crucial role in the lender’s decision and the interest rate offered.
Choose a Lender: Look for financial institutions or online lenders that offer Personal Lines of Credit. Compare terms, rates, and fees.
Application Process: Submit your application to the selected lender. They will evaluate your credit history, income, and ability to repay the debt.
Access Funds: If approved, you’ll have a predetermined credit limit. Withdraw funds as needed for your home remodeling project.
Repayment: Personal Lines of Credit typically require monthly payments of principal and interest. Make sure to budget accordingly.
Benefits of Financing with a Line of Credit:
Flexibility: Credit lines offer flexibility as you can use funds for various aspects of your remodel, including materials, labor, and unexpected costs.
Interest Savings: You only pay interest on the amount borrowed, which can result in savings compared to a lump-sum loan with interest accruing on the full amount.
Millions of Americans are thinking about the same thing. The economy is accelerating and home values are increases. Home equity interest rates are very low to boot. So 2024 could be very good time to pull the trigger and to remodel that house with equity from your home equity loan and credit.
Homeowners should consider the significant credit line opportunities available with the help of a home remodel loan fulfilled by a trusted home equity lenders.
But what are the best ways to remodel your home? What provides you the best return on investment? Experts have weighed in, and this is what they report:
#1 Add New Attic Insulation
When it comes to home remodels and upgrades with a second mortgage or a house remodel loan, this may not be on the top of everyone’s list. Putting in new insulation is not the sexiest upgrade you can make.
However, when it comes to bang for your hard earned buck, you can rarely beat adding insulation. The average cost of this little project is $1,300 and you will recoup $1400 when you resell. So, you actually made money on this upgrade – congratulations!
There is more, too: You will save significantly on your heating and cooling bills as the months go by. When you consider how inexpensive this upgrade is, adding attic insulation is one of the absolute best choices.
#2 Replace the Front Door
If you have an older home with a cheap steel door, one of the best returns on investment in a remodel is to replace the front door. Unless you go crazy on a $10,000 door (a bad idea unless you have a $1 million home), you can bet your will see almost all of your spent money back when you sell.
A typical new front door can cost approximately $1400; if you were to spend that on your new door, you would see an average resale value of nearly $1300 and a total recouped amount of 90%.
#3 Minor to Moderate Kitchen Remodel
When people are thinking about buying a home and walk in the door, many will go straight to the kitchen to see how updated it is. People like to see an updated kitchen because they spend so much of their time there to cook, eat and socialize with family.
For that reason, a kitchen remodel is often tops on the list for people wanting to use a home equity credit line or 2nd-mortgage loan to renovate their home. But experts advise caution on the degree of the remodel.
A classic mistake that some home owners make is to spend too much on the remodel. If you have a $150,000 home and spend $100,000 on upgrading the kitchen, you will certainly enjoy that fantastic kitchen! Just don’t expect to recoup anywhere near what you spent when you sell the home. Experts recommend to spend no more than roughly 20-25% of the value of the home on a kitchen remodel.
But you can do a good deal less than that and still have a very nice kitchen that will pay you back at the closing table.
If you have a 200 square foot kitchen and you reface cabinets, install new counters and put in new appliances, you will spend roughly $20,000 and gain approximately $17,000 on the resale, for a total recouped amount of 80%.
#4 Remodel the Basement
A finished basement can easily add 800 or 1,000 square feet of usable space to the home. For many people, an unfinished basement is a lot of unused space. But the good news is that it is easier and less expensive to finish this existing unused space than it is to build an addition on the home.
If you decide to finish a 20×30 foot entertainment room in your basement with a bar, fridge and a small, full bath, experts say that you could spend in the neighborhood of $71,000 and see an average return on resale of $49,700. This would mean a total recouped cost of 70%.
Some people also like to put another bedroom in the basement along with the bathroom; it can serve as a nice place to put your parents or in laws when they drop in for a visit.
#5 Addition to the Family Room
If you have enough equity in your home, many experts say that adding square footage to key areas of the home can be a good investment. Adding an addition on the back of the house that expands the family room can make a lot of sense. The family room, of course, is where many people spend a lot of time, along with the kitchen and bedroom.
How much it will cost varies of course by how big and how fancy. But if you were to add a 16×25 family room addition with hardwood floors, recessed ceiling lights, a skylight and windows, you could expect to spend in the ballpark of $90,000.
On average you would get $62,000 back when you sell, for a recouped cost of 69%.
There are good and terrible ways to remodel and upgrade your house when you take out a line of credit or a fixed 2nd mortgage, in terms of return on investment. Again, home equity interest rates continue to be advertised near record lows on home remodel loans. Look for the best HELOC interest rates now. We strongly recommend that you choose some of the above options to get the most out of your money when tapping your equity.
Takeaways on Financing a Home Remodel with a HELOC
Once approved, you can access funds swiftly to seize opportunities and tackle your remodeling projects efficiently. Financing a home remodel with a line of credit can be a smart and flexible way to fund your project. However, it’s crucial to carefully assess your financial situation and choose the right type of line of credit that suits your needs. With the right planning and responsible borrowing, you can turn your remodeling dreams into reality.
So the value of your home has been soaring for the past several years. You see all of that equity sitting in your property, and you ALSO see that old dingy kitchen and bathroom and think, maybe it’s time for a remodel!
About RefiGuide
Bryan Dornan is a financial journalist and currently serves as Chief Editor of RefiGuide.org. Bryan has founded several mortgage and marketing companies and has worked as a loan officer and mortgage broker in the industry for over 25 years and has a wealth of experience in providing mortgage clients with the highest level of service in the industry. Bryan's continual focus is to promote affordable home-ownership to consumers like you across the United States. He also writes for RealtyTimes, Patch, Buzzfeed, Medium and other national publications. Find him on Twitter, Muckrack, and Linkedin
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