The 4 home improvement questions we need to answer

Will this help increase the price I can get for my house if I sell in the future? 

Before we do anything else, we must answer this one. Increasing the value of your home is known as building equity, and we should carefully consider whether the improvements we’re planning will increase the market value of the home. Some improvements can add a lot of value — even more than the amount spent in some cases. Common examples of high-value improvements include those which increase curb appeal or energy efficiency, and modernizing key spaces like kitchens and baths. Finishing spaces like basements can also be a equity-building investment. Making sure improvements are appropriate for the type of home and neighborhood is also important.

On the other hand, improvements must be done right. For example, thinking of adding bedrooms as you finish your basement? To qualify as a bedroom, the new room must have two ways of egress (windows or exterior doors), must meet size requirements, and is generally expected to have a closet. Adding a deck? You will likely need a permit and to ensure the deck meets structural codes. Some neighborhoods also have requirements about the size of the structure and materials used. Check with your city laws, your HOA if you have one, and talk to neighbors who have completed similar projects. Bottom line, the best improvements increase both the value and our use and enjoyment of the home, whereas lack of planning may leave you wishing you could start the whole project over.

Do I have equity in my home?

Equity is the current value of our home minus what we still owe on our mortgage. That value builds over time as we pay on our mortgage and can also increase if home prices go up. If we have enough equity, we may be able to use it to pay for the improvements we want to do. Options like a home equity loan or a home equity line of credit (HELOC) can allow us to tap into that value, often with lower interest rates than other types of financing. It’s a good idea to estimate how much equity you have before exploring these home improvement financing options, so you know what may be available to you.

Use our Home Equity calculator to get an idea of the equity you currently have in your home!

Do I have good credit? 

Our credit history plays a big role in whether you’ll qualify for a home improvement loan, and it can also impact the interest rates and loan terms you’re offered. In general, a higher credit score can help you secure better financing options, whether you’re considering a home equity loan, HELOC, or personal loan for renovations. Lenders will typically look at factors like your payment history, credit utilization, and overall debt when reviewing your application, so it’s worth understanding where you stand before you apply. Taking time to review your credit report and improve your score (if needed) can make a meaningful difference in your borrowing power and the total cost of your project.

(P.S. - If you’re looking to up your credit score, check out our quick guide for making that happen.) 

What kind of loan is right for me? 

This is the big question! The good news is that we have plenty options for paying for these home improvement projects. Let’s take a look:

Home Equity Line of Credit 

• The basics – This loan allows us to use the equity we’ve built up in our home to make improvements. Better yet, we can borrow funds as we go and pay interest only on the loan amount we’ve used. In most cases, these loans may let us borrow up to 90% of the value of our home.* 
  
• Example – Our house is worth $190,000 and we currently owe $155,000. Let’s say we’re able to borrow a maximum of 90% of the home’s value. In this case, our home equity credit line could be up to $16,000 for improvements. Here’s how the math works. Our home is worth $190,000 x 90% = $171,000 minus the $155,000 we still owe = $16,000!

Cash-Out Refinance 

• The basics – Once again, we’re tapping into the equity we’ve built up in our home to pay for home improvements. But instead of ending up with two loans (our existing mortgage plus a new credit line), we’re totally refinancing our current mortgage at a higher amount to cover what we owe now and give us the money to make our improvements. In some cases, a cash-out refinance may also help us improve our interest rate. The amount we can typically borrow on these loans is generally around 80%.*
  
• Example – Let’s say our house is worth $180,000 and we still owe $120,000 on the mortgage. We could do a cash-out refinance and have $24,000 for home improvements. Here is how the math works on this one. Our home is worth $180,000 x 80% (the percentage we can borrow) = $144,000. That $144,000 is $24,000 more than the $120,000 we owe. Which means we now have $24,000 to use for those improvements.

Unsecured Home Improvement Loan 

• The basics - This one is a bit different - it’s not connected to the value we’ve built up in our home. It’s a personal loan from the bank to us that’s not secured by a mortgage on our home. Usually, the interest rate is a little higher and we can’t borrow quite as much.

If you have a question, don’t hesitate to drop us a line, give us a call, or just stop in to talk. We'll be happy to hear about the exciting updates you have planned and to offer guidance when it comes to financing that home improvement project.

*Subject to loan approval