Is a Home Improvement Loan the Best Way to Fund a Renovation?

Home improvement, also called renovation or remodeling, is a term used to describe home projects that add value to an existing house. These include adding or improving rooms, rearranging furniture and modifying the layout of the property.

There are a few things to consider when doing a home improvement project, including whether the project will add value and what the return on investment will be. For example, is a home improvement loan the best way to pay for a major renovation?

A Home Equity Loan:

If you have a high enough amount of equity in your home, you may be able to secure a home equity loan to pay for the cost of your project. These loans are usually repaid over a period of 5-30 years. The interest rate can be much lower than a traditional mortgage.

But be sure to have a budget in mind before applying for a home equity loan and remember that the total amount of money you can borrow cannot exceed 85% of your home’s current value.

Other Options for a Home Improvement Loan:

For minimal upgrades that don’t require a large loan, you can consider a credit card. Many credit cards offer introductory 0% APR periods that can last for up to 12 months.

Another option is a line of credit from your bank. These home equity lines of credit allow you to make small, low-interest payments over time. These can be helpful for making smaller purchases, such as new flooring or a kitchen remodel.

Some people also use a home equity line of credit to fund a larger renovation, like a complete remodel or addition. But if you have a large renovation planned, this could be a costly way to finance the project and could end up being more expensive than a traditional mortgage.

What to Do If Your Home Addition or Renovation Doesn’t Increase Your Home’s Value:

Adding extra bedrooms or bathrooms is a popular home improvement idea, but you shouldn’t go overboard with the renovation. Often, adding extra bathrooms is just more space for your family to use, and that can actually decrease the value of the home, according to HouseLogic.

It’s a good idea to consult a real estate agent to find out how a home renovation or addition would affect your home’s overall value before going ahead with it. It’s also a good idea to look at your local market and how a similar home in your neighborhood has sold.

The most popular home improvements in 2017 were minor bathroom and kitchen updates. Those projects include refreshing shower areas, replacing vanities and toilets, laying new tile, and fitting new countertops. While these upgrades don’t necessarily add the highest dollar value to your home, they can make a big impact and give your house a modern, refreshed look.