Financing your Home Renovation or Remodel
Being a homeowner can be an extremely rewarding experience. Making a house into your home creates feelings of pride and security, but it also comes with a lot of responsibility and expense.
In addition to performing regular home maintenance, people choose to remodel their homes for a variety of reasons: to upgrade or change the home’s style, to add energy-efficient features or to boost the home’s value ahead of a sale.
Regardless of the reason, you’ll need to consider the following factors before you pull out the sledgehammer, head to the home improvement store or take out a loan.
Calculate return on investment
Many people assume that any improvement they make to their home will add to its value, but that’s not necessarily the case. This is especially important to consider if you’re undergoing a remodel before putting your house on the market. Often, bathrooms and kitchens offer the best return on investment, in some cases paying off 100 percent of their costs.
Other kinds of home remodels — especially hefty repairs and energy efficiency improvements — recoup their costs more over time. Consider whether your remodel will add to the value or your home or detract from it. Regardless of the financial payoff, the most valuable return on investment will come in the form of a home that you love living in.
Determine your budget
Before you start picking out new appliances or fixtures, it’s important to create a budget that makes sense in terms of your finances and the value of your home. One common way to determine the most you should spend on a remodel is to consider how much value it represents in your home. A kitchen, for example, represents about 10 percent of your home’s total worth. For a $300,000 home, that comes to $30,000. Using that rule of thumb, you’ll know the maximum amount to spend on a remodel.
It’s also valuable to think about the neighborhood you live in. In some cases, certain remodels won’t add to the value of the home at all. Consider your neighbors’ homes when you decide which upgrades are most appropriate.
As you create your remodeling budget, you should also factor in the savings your renovations and repairs will generate. If you’re adding solar panels to your roof, you may save considerably on your energy bill, which will gradually offset the cost of the panel. Once you know how much you’re willing and able to spend, you can start shopping around.
Get several quotes
As with any large purchase, it’s important to get several quotes first. Beyond pricing, you’ll want to work with someone who understands your needs and wants because you’ll be working together closely on the remodel itself.
For large projects that span multiple areas of your home, you may opt to work with a contractor to manage the project from start to finish. If your remodel is more specialized or confined to a single space, you may instead hire a specialist in that specific trade. Regardless of the individual or company you hire, verify that they are insured and bonded to ensure the project is handled properly and safely.
Find a loan
There are many loans available to help homeowners finance improvements and remodels, but it’s important to determine which is the best for your situation and home.
Refinancing:Refinancing is a viable option when the current interest rates are lower than the one locked into your existing mortgage. This is especially valuable if you have equity in your home. Refinancing can potentially lower your monthly payment, which could help you save for home improvements in the future.
Home equity loan: Home equity is the difference between what you still owe on your home and its fair market value. Essentially, a home equity loan allows you to borrow against the value of your home without altering your existing mortgage. InTouch Credit Union offers home equity loans up to 80 percent of your home’s value in Texas, and up to 90 percent in other states (minus existing mortgages).
Home equity line of credit (HELOC):A home equity line of credit (HELOC) allows you to borrow from a set amount of funds with a maximum limit, much like a credit card. This is different from a home equity loan in that you can determine how much or how little you’d like to borrow. InTouch Credit Union has a variety of HELOC options that may fit your situation.
Figure out what kind of loan is best for your home improvement project with InTouch Credit Union’s helpful calculators
, and then reach out to one of our professionals to get the process started. Embarking on a home improvement journey can feel daunting, but with the help of the financial experts at InTouch Credit Union, it doesn’t have to be. See how we can help you make your house into your dream home.