Using Your Home Equity Loan for Home Improvements

If you plan to use your home equity to remodel, make sure you read this.

2/16/2011 7:30:00 PM
If you're like many Americans whose favorite store is either Home Depot or Lowe's, whose favorite television channel is Home and Garden Television and whose idea of a celebrity is Bob Vila, then you may have caught the home-improvement bug.

Millions of Americans who are cash-strapped and looking to improve either their living space or home's resale value by adding a state-of-the-art kitchen, luxurious master bathroom or cozy attic loft may want to consider a home equity loan. A home equity loan, which is secured by the equity value in your home, can be useful in financing major expenses such as home repairs and home improvements. If you choose the right home improvement projects, you can increase the value of your home. And, if you finance correctly, the interest you pay on your home equity loan may be tax deductible.

Few expenditures on home improvements are recouped completely, but some remodeling or replacement projects can increase the value of your home by more than 80%, according to the 2010–2011 Cost vs. Value Report published by Remodeling magazine in November 2010. The report looked at the cost of 35 home improvement projects vs. what they were worth when the house was sold. Some of the results are a bit surprising. The homeowner who is looking to sell his or her home in the future may want to take note.

The Numbers

First and foremost, the overall trend shows that replacement projects and small jobs lead the pack. This is good news for homeowners, because some of these projects have less of a cost outlay, yet recoup much of their value. Nine out of the 35 home improvement projects tracked by Remodeling magazine that fared well in retaining their value were exterior improvements, which is no surprise with the housing bubble in recent years. Focusing on the home's exterior, homeowners are looking to improve their home's curb appeal, a subjective factor that highly influences potential home buyers.

The home improvement project that received the highest value on return was a replacement steel entry door, which recouped over 102% of its cost nationally. Another exterior project that had strong numbers was a garage door replacement, for which homeowners in many cities received close to 84% of their costs. Siding and window replacements came in at around 72%. Smart Money confirms that green updates also add value to your home. Although installation can be pricey, about 65% to 76% of the cost can be recouped when putting new, energy-efficient windows and doors in your home. Continuing with the outdoor theme, the addition of a wood deck brought homeowners 73% of their cost outlay when they sold their home.

Moving to the interior of the home, a kitchen remodel still remains strong in recouping costs. It is interesting to note that a "minor" kitchen remodel, such as replacing cabinet fronts, adding new hardware, installing energy-efficient appliances, changing laminate countertops, and installing a moderately priced faucet and sink can increase home value around 4% more than can a "major" kitchen remodel, which includes adding a 3x5-foot island, stainless-steel double sink, ventilation system, built-in microwave, garbage disposal, custom lighting and new flooring. A homeowner can expect to recover about 73% of investments with a "minor" kitchen upgrade versus 69% with a "major" kitchen upgrade. Some of the other high-return-on-investment projects include an attic bedroom (72%) and a basement remodel (70%). Bathroom additions and bathroom remodels came in at 53% and 64%, respectively. One additional interesting point that came out of the study is that cost vs. value varies by area of the country. For example, a major kitchen remodel in Los Angeles returned 77% of its cost, whereas the same remodel in Pittsburgh only returned 69%.

Remodeling magazine did not track the increase in value with a pool installation, but Smart Money reports that pools essentially offer no resale value. For one, prospective home buyers are concerned about a pool's costly maintenance and upkeep. They are also concerned about safety and legal issues, making this home improvement feature less desired by new home buyers. Other home improvements that were low on the cost recoup scale were a sunroom addition (49%), home office addition (46%) and backup power generator (49%). If some of these figures cause you to develop the home improvement "bug," then contact us today to discuss how a home equity loan can help. Now's a perfect time to lock in a great low rate! Contact us today.

Related Blog Posts

Tools and Tech to Protect Your Company Against Check and ACH Fraud

Full story...

5 Steps for Evaluating Your Employees

Employee evaluations are a great indicator of performance and helps identify areas of praise or improvement. Full story...

Pros and Cons of Having an Emergency Fund

The upsides and possible downsides of socking away money Full story...