If you’ve been in your home for a substantial amount of time or feel it may need a little facelift, you may consider a home renovation. Home renovations can be a big undertaking, but they can also add to the value of your home. Here we’ll look at home renovation projects and financial strategies to support them.
Why Invest In Your Home?
There are several reasons people choose to remodel their homes. For some, it may be for personal fulfillment. Our home is our haven where we spend a large amount of our time, and the way it looks and feels can make all the difference.
Perhaps you’ve been staring at the same style in your home for decades and want to try a different one. Or maybe you have a passion for design and an instinct to update things. These can be great reasons to go forward with a renovation. Making a space you enjoy being in leads to a more content life!
For others, a lifestyle change may bring up the idea of a home renovation. This could include changes such as having kids, switching to working from home or retiring. As your lifestyle changes, your house may need to be utilized in different or new ways, and some of those will call for a renovation.
Consider the Value
Many will consider renovating to increase their home value, but this can be tricky! Surprisingly, increasing home value shouldn’t be the #1 reason for a renovation- unless you’re doing a flip. You want to avoid significant projects that may backfire, put you in the hole, and become more hassle than they’re worth. Some poorly chosen projects can even lower the value of a home.
Along these lines, consider particular renovations. This might look like projects that cater specifically to you, such as building space or equipment for your profession, sport, or personal hobby. These can be great for you but don’t expect a future buyer to appreciate them as much. You also may want to avoid the trap of something you enjoy but a future home buyer might not want to maintain, like a prominent water feature in the backyard.
There are several other pitfalls HGTV mentions in their list of home renovation mistakes, such as going too trendy, ignoring your home’s style, and overbuilding for your neighborhood.
That being said, many projects will increase your home value. Some of these renovations include:
- Upgrading the bathroom
- Replacing the garage door
- Updating the deck
- Upgrading siding
- Upgrading the kitchen
- Updating lighting
You can find many more projects to increase your home’s value, so do your research. Paying attention to what will increase your home value will be helpful when it comes to narrowing down decisions.
How To Invest in Your Home
You should first set clear expectations to avoid a money pit or any less-than-ideal situations with a renovation. This will include specifics about project timelines, what the final product is, and of course, the budget.
Budget Is Crucial
You must be thorough with your budget when taking on such large projects. First, take a look at your long-term financial goals. Make sure a renovation would fit in with these goals and not detract or set you back to a place you can’t quickly recover from.
Next, create a savings bucket or account/category in your budgeting software. Tracking expenses and being exact will be helpful during this process. If you’ve ever spent more in a store than you intended, just imagine the large scale of a home renovation. Inevitably, things will require more money or time, so be prepared and allot extra funds where necessary.
How To Pay for the Renovation
Aside from standard budgeting for a home renovation, you may choose to finance it by leveraging a recent windfall you’ve had. Perhaps you’ve received a large bonus from work, an inheritance, or want to take advantage of your stocks or investments that are doing well. This can be a great way to use these unexpected bonuses.
Consider mortgage and loan options to finance your home renovation. A home renovation loan may include one of the following:
- A purchase mortgage, with additional funds for renovations
- A refinance of your current mortgage with a cash payout for home improvements
- A home equity loan or line of credit (HELOC)
- An unsecured personal loan
- A government loan, such as a Fannie Mae HomeStyle loan or FHA 203(k) loan
Each of these options has its advantages and drawbacks. In general, when you use a loan during a home renovation, you’ll have the money necessary for your projects, and hopefully, this will pay off in the future when you’ve added value to your home and have to start making payments on it.
Some possible cons to going this route to keep in mind are:
- Stringent requirements and complicated processes
- You pay more due to refinancing
- Higher closing costs
- You won’t get all of your money right away
- Frequent property inspections
These elements don’t necessarily have to hold you back; just make sure you understand what you’re getting into before hastily taking out a loan to renovate your home.
The Future Is Bright
It’s an exciting time when you’re looking to remodel your home by honing in on the “what” and “why” of your renovation, being conscious of your budget, and financing your projects responsibly, you can be on track to a more beautiful and sellable home in no time.
Contact us today for financial planning assistance during your renovation!