Not ready to sell? Use your equity to make home improvements.
It’s been an unusual housing market the last few years, leaving many homeowners with a lot of equity in their homes but little motivation to move. Instead of hunting for a dream house on real estate sites, many are taking advantage of home equity financing to make home improvements — whether it be a new deck or a kitchen rehab — they can enjoy in the meantime.
Updating your home can also increase its value when you’re ready to sell. That being said, when it comes to recouping the cost of your remodeling efforts, some projects deliver more bang for your buck than others. Here, we share more on how home equity lending works and what improvements typically offer the best returns.
What is home equity lending?
“Home equity lending is when a homeowner borrows money from a financial institution using the value of their house as a guarantee to pay the loan back,” says Becky Soetaert, senior product manager, mortgage department with Commerce Bank. “In most markets, the longer you stay in your home and pay down your mortgage, the more your equity grows and the more valuable your home becomes. If you bought a home a number of years ago, your house may be worth a lot more than your mortgage, making you a great candidate for home equity financing,” adds Soetaert.
What home improvements deliver the most bang for your buck?
While home improvement projects can boost the comfort, security and appearance of your home, certain renovations add more value than others. And that can put you in a smart financial position when you’re ready to sell. According to Remodeling Magazine’s annual Cost to Value reportopens in a new window, here are the top nine home improvements that net the highest returns:
| Project | Job Cost | Resale Value | Cost Recouped |
|---|---|---|---|
| Garage door replacement | $4,513 | $8,751 | 193.9% |
| Entry Door Replacement | Steel | $2,355 | $4,430 | 188.1% |
| Manufactured Stone Veneer | $11,287 | $17,291 | 153.2% |
| Minor Kitchen Remodel | Midrange | $27,492 | $26,406 | 96.1% |
| Siding Replacement | Fiber-Cement | $20,619 | $18,230 | 88.4% |
| Deck Addition | Wood | $17,615 | $14,596 | 82.9% |
| Siding Replacement | Vinyl | $17,410 | $13,957 | 80.2% |
| Bath Remodel | Midrange | $25,251 | $18,613 | 73.7% |
Keep in mind that the costs above are based on national averages and may vary by region.
What home renovation financing options do I have?
If you’re ready to take on a big project and want to take advantage of your home equity to finance it, Commerce offers a number of different home renovation financing solutions to fit your needs.
“Home equity borrowing often involves no closing costs, and generally offers lower interest rates than other forms of borrowing,” says Soetaert. “In addition, either a HELOC (Home Equity Line of Credit) or home equity loan may be tax-deductible when used for home improvement projects.” Soetaert says it's always wise to consult with a tax professional or review IRS guidelines to understand how the rules apply to your specific situation.
- A home equity loan can be a smart solution for projects that require an upfront sum. The amount you qualify to borrow is based on a percentage of your home’s value, and your interest rate and monthly payment are fixed for the life of the loan.
- A HELOC may offer more flexible payment options, especially if your project has many phases and you don’t need the full amount to cover your project all at once. With a HELOC, you make a monthly payment to repay what you’ve borrowed, and you accrue interest only on the funds you use. Similar to a credit card, your available credit replenishes as you make payments, so you can use it again and again.
For more information about financing your home improvement projects or to learn more about home equity options, contact Commerce Home Equity Specialists at 844-340-2574 or allthingsmortgage@commercebank.com.
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