Think About Your Home’s Future Buyer
Home upgrades can result in more enjoyment and pride as a homeowner.
But some home improvements are more valuable than others. A project should look great and offer a solid return on investment (ROI).
While ROI is not the only factor, it is worth considering. Some “upgrades” can actually decrease your home’s value. For instance, an outdoor swimming pool does not appeal to buyers in many areas of the country.
Think about your home’s future buyer, even if you don’t plan to sell right now. What would make them want to buy your home?
If your project appeals to you and future owners, it’s a good sign that you have planned a high-ROI project.
Loan Options To Finance Your Home Improvements
A financial plan is important when starting any home improvement project.
Create a budget and try to adhere to it. And figure out how you will pay for it.
You can pay cash. That is an interest-free payment method. But it only works for those with adequate money in the bank. Even for those who do should consider the risk of depleting cash reserves.
Homeowners who can’t — or don’t want to — pay cash may be able to tap into their home’s equity.
A home equity loan or home equity line of credit (HELOC) can give you access to a large amount of cash with very little closing costs and time. Some HELOC lenders let you finance up to 90 or even 100 percent of your home’s value.
A HELOC allows you to borrow small chunks of money at a time. You can draw out, and pay interest on, only what you need as you go.
These lines of credit can be more cost-effective than financing home improvements with a credit card. HELOCs typically carry rates close to the prime rate, currently at 3.5%. The prime rate has only risen by 25 basis points (0.25%) in the last eight years. It is expected to rise slowly in coming years, if it rises at all.
Home equity loans are like HELOCs, but you must receive the entire loan amount in one lump sum. The advantage is that the rate is fixed, albeit higher than those typically found with HELOCs.
For big projects, consider a cash-out refinance.
This type of loan pays off your current mortgage plus gives you additional funds. This loan works well for homeowners who plan to refinance anyway. Some homeowners reduce their mortgage rate while taking out additional cash.
Cash-out loans come in many varieties. FHA loans allow cash out up to 85% of your home’s value. Conventional loans underwritten by Fannie Mae and Freddie Mac rules allow 80% of your home’s value to be financed with a cash-out mortgage.
Military veterans have access to the best cash-out program, however. VA home loans allow loan amounts up to 100% of the home’s value. Homeowners can use the cash for any purpose, including home improvement projects.
No matter how you finance your project, homeowners should make sure the project pays off in enjoyment and home value.
1. Attic Insulation
It’s not the most glamorous project, but it does offer the highest return.
Attic insulation is also quick and inexpensive. Loose-fill fiberglass insulation is blown into the attic space until your insulation reaches at least “R-30,” a measurement of heat flow resistance.
Remodeling Magazine’s Cost vs Value report says the cost averages $1,268 nationwide, and the average increase of home value is 116 percent of the cost.
The real savings, however, come from increased energy efficiency. Energy Star, an arm of the U.S. Environmental Protection Agency, says attic improvements offer the most impactful energy savings, decreasing energy usage by about 15 percent.
That’s the same as getting nearly two months of heating and cooling free of charge every year.
2. Manufactured Stone Veneer
Some of the best and most popular improvements this year, says Remodeling Magazine, are those which enhance a home’s curb appeal.
Adding manufactured stone veneer topped all exterior improvements, returning 92.9 percent of its cost in the first year. Manufactured stone veneers are siding upgrades that bring the look of stone to your home’s exterior without the high price and heavy weight of real rock.
Unlike faux stone, which is similar to plastic, manufactured stone has the substance and appearance of real stone. The average cost to replace 300 square feet of existing siding from the bottom third of a house is about $7,500 according to the Remodeling Magazine’s estimates.
You can expect to get about $7,000 back in increased home value from this project.
3. Garage Door Replacement
Replacing garage doors provides the third-highest ROI overall: 91.5 percent. Your actual increase depends on the ugliness and inefficiency of your current door.
This improvement can enhance your curb appeal while also offering energy savings. Average cost is $1,651 to exchange an existing 16x7-foot garage door and tracks for a new 4-section embossed steel door with a ten-year warranty.
4. Exterior Door Replacement
Another curb appeal boost is replacement of a wood exterior door with a steel one.
Steel doors can be more energy-efficient and require less maintenance than wood doors. They also provide more security and safety.
The average cost is $1,335 to replace your old door and jambs. Since this is a very visible upgrade, you can expect to get more than 90% of your investment back in increased home value.
5. Minor Kitchen Remodel
Real estate agents always say that kitchens sell homes. They can also un-sell homes if they’re obsolete or unattractive.
The kitchen is nearly always a wise project to consider. However, it’s not a quick and inexpensive upgrade.
The average minor kitchen remodel costs over $20,000 and returns over 80 percent of its cost in additional home value. Your actual ROI depends partly on how unsightly or inconvenient your kitchen is now.
The minor kitchen remodel is defined as 200 square feet of floor space with 30 linear feet of cabinetry. The work to be completed in this price range includes the following.
- Replace cabinet fronts and hardware
- Install new energy-efficient wall oven and cooktop
- Replace laminate countertops
- Install a new mid-priced sink and faucet
- Paint trim and walls
- Install new resilient flooring
Kitchen remodel costs vary widely with kitchen sizes and desired amenities. Be sure to create a budget for this large of a project, and know exactly what you want before you start.
If you don’t plan to do the work yourself, get bids from multiple contractors before deciding on one.
What Are Today’s Rates?
Home improvements bring a sense of accomplishment like few other endeavors. Your personal touch makes the home feel more “yours” somehow.
If you plan to finance your project, you’ll find that mortgage rates are low. Lenders are eager to issue cash-out financing for homeowners seeking to improve the home on which the lender will issue the loan.
Get a rate quote for your refinance. All quotes come with access to your live credit scores, and no social security number is required to start.