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By Ben Heinze
Home improvement projects are costly but often worth it. Not only do you give your home a much needed or wanted upgrade, but you increase its value in the process. If there are home improvement or renovation projects you want to complete but don’t have the cash immediately available for it, a home equity line of credit (HELOC) is a great option to consider. Learn what a HELOC is, how to use one effectively and six ideas for home improvement projects to use with one.
A home equity line of credit (HELOC) allows you to borrow from your home as a line of credit, leveraging the equity you’ve built up in your home. When you apply and open a HELOC, you can borrow from that line of credit as you need it, up to your credit limit. Unlike many other loans, you only have to pay what you spend, giving you flexibility as you decide how best to use it.
HELOCs have a draw period and a repayment period. While each financial institution will operate slightly differently, Alliant’s HELOCs are a great example of what to expect. The 10-year draw period will allow you to spend against your line of credit for the first 10 years, and you are only required to pay interest during this period. Then, during the repayment period of up to 20 years, you’ll pay any remaining interest and the principal of what you borrowed. Of course, you can always make additional payments to pay your HELOC off early!
While home improvements have clear benefits in making your home a better place to live, there are several key financial benefits to improving your home.
Money put into home improvements is rarely a sunk cost. A home’s market value is based on many factors, but the quality and desirability of the house itself is a huge component. By putting money into home improvement projects, you will usually increase your home’s value in the process.
Keep in mind that the ratio between the money you put into these projects and your home’s value is not 1:1. In other words, don’t expect your home’s value to increase by $10,000 when you put $10,000 into improvement projects. The real estate industry uses a broad 70% guideline, which is the idea you can expect to get around 70% of the cost of home improvements back through increasing the value of your home. However, research how the home improvement projects you’re thinking of making typically affect the value of a home, as the amount varies significantly.
Selling your home can be stressful, even more so if prospective homebuyers aren’t interested in your home. Home improvements make your home more attractive when it comes time to sell, even beyond the pure value of your home. Modern finishes, new appliances and more will help your home sell faster and attract more buyers.
Home repairs and maintenance are a necessary part of homeownership. While these costs can often be daunting, you’re usually better off proactively taking care of your home’s upkeep before it becomes a problem. For example, replacing a roof can be expensive, but putting that replacement off can result in eventual damage to your home, making that repair bill much larger than it would have been.
The value of a good roof goes without saying. While replacing your current roof is a large financial investment, it’s essential to any home’s lifespan. Unlike other home improvement projects, getting a new roof is less about wanting to upgrade and more about protecting your home and ensuring peace of mind. A new roof can also improve insulation and energy efficiency, saving you money later.
Because a roof in good condition is so important, replacing an old, degrading roof with a quality new one will often give you great returns on your investment when it comes time to sell. Furthermore, doing what you can to avoid unnecessary damage to your home goes a long way in retaining its current value.
As one of the most used rooms in the home, kitchen renovations are both a popular and practical choice for home improvements. You can break kitchen improvements into minor and major kitchen remodels, with the former focusing primarily on cosmetic changes and new appliances and the latter involving changing the floor plan, pipes, etc., of your kitchen.
These improvements will often significantly increase the value of your home. Prospective home buyers typically place great importance on the kitchen, so having yours in great shape will increase your home’s value and make selling much easier when the time comes.
Even if you have no plans to sell soon, upgrading your kitchen is a great way to encourage cooking at home and getting more joy out of your house.
Much like the kitchen, bathrooms are an important room in any house, and one prospective buyers pay close attention to. Bathroom renovations can include everything from a new toilet, bathtub, shower, etc., to upgrading cabinets and even replacing pipes. Having an aesthetically pleasing and comfortable bathroom improves any home, plus resolving potential plumbing issues in the bathroom can proactively take care of potential issues and damage down the road.
Even if your bathroom renovations don’t recoup their total cost in the increased value of your home, having a quality bathroom makes any home nicer to live in and will make selling easier.
Upgrading your HVAC (heating, ventilation and air conditioning) system isn’t as glamorous as other home improvements, but it’s often an investment well worth making. For one, the quality and condition of your HVAC system plays a large part in how comfortable your home is day-to-day. Furthermore, a high-quality, modern HVAC system will be very energy efficient, resulting in significant energy savings down the line.
Unfortunately, HVAC systems don’t last forever, so if yours is beginning to show its age, it may be time to consider upgrading. And if you’re thinking of selling soon, an old HVAC system can often come up during an inspection.
In recent years, a dedicated home office room has grown significantly in popularity, due primarily to the growth of remote work. Whether you work from home or not, many prospective home buyers do, so having a room that can be used as a home office or easily converted into one is important.
If you have a newer home, you may already have a room that could be used as a home office, even if it’s not already, such as a guest bedroom. However, some older homes have minimal outlets and a poorly equipped layout for a home office. Adding outlets, windows to increase natural light, built-in storage and more will make extra rooms more attractive and multifunctional.
For better or worse, your home’s exterior is one of the first things people will notice about it. Because of this, exterior improvements are an effective way to increase your home’s value and make it look nicer in general. This category of improvements is broad and includes everything from landscaping improvements to siding replacements.
While the specific return on investment varies, exterior improvements often rank among the highest return on investments for home improvements. Some of these improvements, such as a front door upgrade or landscape improvements, are also less intensive and disruptive upgrades to make.
If you’re looking to improve your home, these options are great starting points to consider what upgrade may be most worth it. Of course, there are many other home improvements you can make, and the best choice will depend on your individual situation. Whatever improvements you choose, taking advantage of a HELOC’s flexibility can leave you in a great spot to make smart home improvements.
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