Down Payment Assistance Programs

What Upgrades and Renovations Reliably Increase Home Value?

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Not all home renovations provide a decent return on your investment. In fact, some investments that cost thousands of dollars give very little return back to the homeowner. Before you jump in headfirst and make renovations to increase your home’s value, learn which renovations will actually increase your home’s value.

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Paint the Interior or Exterior of the Home

Paint is inexpensive, yet it can add tremendous value to your home. Inside, paint can give a home that warm, cozy feeling. Just by switching the paint colors, you can transform a room from boring to amazing. Whether you have a home with old, peeling paint or the paint is just outdated and needs a fresh coat, it can add tremendous value to your home

Exterior paint can have the same effect. The exterior of your home offers the first impression of your home for many people. If the paint looks faded and worn, it may turn people off. A fresh coat of paint can bring the house back to life, making it look newer and brighter, again for only a small investment, which you’ll see, reflected in your home’s new value.

Fix Up the Kitchen or Bathroom

Kitchens and bathrooms get the most use and therefore have the greatest return on their value when renovating them. Luckily, you don’t have to do major renovations to either room to see a good return on your investment.

Minor renovations in the kitchen and bathroom include refinishing the cabinets, replacing the appliances, or changing the flooring. These changes, whether you choose one or all, typically return at least 80 percent of your investment.

A few other ways to moderately renovate a kitchen or bathroom include changing out the faucets or lighting and repainting either room. What you get when you are done are two rooms with great function and new beauty. Having updated kitchens and bathrooms also help you sell your home faster, as they are the two areas most buyers look at first.

Update the Curb Appeal

Many people focus on interior renovations when fixing up a home, overlooking one simple change they can make outdoors – updating the curb appeal. Making your home look impressive from the outside doesn’t require extensive work or a lot of money, though. Simple changes like adding some landscaping, trimming the grass and bushes, and fixing any broken shutters, gutters, or fencing all increase the value of your home.

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Buyers use your curb appeal to determine what the inside of your home looks like before even stepping inside it. If the outside of the home is well kept, passerby assumes that the inside is just as immaculate. If the outside looks trashed and overgrown, it gives a bad vibe regarding the inside too.

Update the Flooring

Changing the flooring can increase your home’s value too. Even though it’s not something you probably notice right away, since the human eye naturally looks up, flooring is important.

If you have torn carpet, damaged wood floors, or torn linoleum, new floors can add tremendous value to your home. If you can afford it, go for the wood floors, as they add the most value. If you don’t prefer wood floors or it’s not in your budget, ceramic or linoleum work well too.

Make Energy Efficient Changes

Buyers love energy efficiency in homes. If you change out the appliances, add solar panels, or the utilities with energy efficient options, you’ll see an increase in your home’s value. Today, consumers want everything energy efficient. It helps reduce the wear and tear on your appliances and utilities and it helps reduce your utility bills.

Small home improvement projects can have a major effect on your home’s value. If you want to increase your home’s resale value, consider any of the above changes. We also recommend talking to a local real estate agent or appraiser before making any renovations to your home to see what people in the area want to see. The professionals working in your area see firsthand how people react to freshly painted walls, energy efficient appliances, and updated flooring, giving you the best chance at increasing your home’s value.

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Finding the Best Home Renovation Loan Program

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Home revocations are expensive. Fortunately, there are programs available today that make them more affordable. Tapping into your home’s equity, you can invest the funds right back into your home with one of the many home renovation loans available today.

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Keep reading to learn which program may be best for you.

The Home Equity Loan (Line of Credit)

Most people think of a home equity loan or line of credit for home renovations. This is probably the simplest loan program since it’s a second lien on the property. You can typically borrow up to 85% of the home’s current value with either loan option.

The home equity loan is a fixed second loan that provides you with a lump sum of funds to make the renovations. Upon receiving the loan, you start making principal and interest payments right away on the full amount. Most home equity loans have a term of 20 years and a fixed interest rate. You receive the funds once and that’s it. The home equity loan is good for projects that have a set budget and you will only need one time.

The home equity line of credit is a revolving loan. It works like a credit card. You get a credit limit to spend and access to it. You don’t have to draw any funds out right away. If you do draw funds out, you pay interest only on those funds. You can choose to make principal payments on top of the interest, but it’s not required. If you do pay the principal back, you can reuse the funds for up to 10 years.

After the 10-year draw period ends, you must make principal and interest payments for the next 20 years. You cannot withdraw any funds once the draw period ends. The HELOC is good for borrowers that don’t have a fixed budget in mind for the home renovations or that will need repeated access to the funds.

Refinance Your First Mortgage

You can also wrap all of your needs into one loan with the cash-out refinance. If you don’t have a great interest rate on your first loan right now, taking a cash-out refinance can simplify things. You borrow as much as you need to pay off your existing mortgage, plus any cash you need for home renovations. You can typically borrow up to 80% of the home’s value with a cash-out refinance, if you qualify.

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Cash out refinances work like the home equity loan. You receive your equity in one lump sum. You can do what you wish with the funds. You’ll pay principal and interest payments on the amount borrowed right away. The interest rate on a cash-out refinance may be a little higher due to the risk the lender takes, so make sure you pay careful attention to the mortgage payment amount.

Take Out a Rehab Loan

There are several rehab loans that you can take out to renovate your home too:

  • FHA 203K – This government loan has flexible guidelines like the standard FHA loan. It provides you with funds to refinance your existing loan plus the cost of home renovations on your primary residence. You can borrow up to 110% of the home’s after-improved value for home renovations. You’ll need a 3.5% down payment and minimum 580 credit score. You can opt for the Streamline FHA 203K that allows up to $35,000 in renovations with no structural changes or the full FHA 203K with stricter requirements, but that doesn’t have a limit on the dollar amount or type of renovations.
  • HomeStyle Loan – The Fannie Mae HomeStyle Loan is the conventional version of the rehab loan. You’ll need a slightly higher credit score of 620 and at least a 3% down payment. Conventional loans have slightly stricter underwriting guidelines, but the HomeStyle Loan allows you to renovate your primary, investment, or second home. You can borrow up to $484,350 with the renovations taking up no more than 75% of the after-repaired home value.

The best home rehab loan for you depends on your circumstances. Do you like your current first mortgage? If you’d rather leave it untouched, you’ll need to take out a home equity loan or HELOC. If you aren’t attached to your first mortgage and don’t mind refinancing it, any of the rehab loans or the cash-out refinance can be a good option. Think about your qualifying factors and if you need the FHA loan for its flexible guidelines. If you qualify for conventional financing, your best bet is to try the cash-out refinance or Fannie Mae HomeStyle loan.

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Best Ways to Finance Home Improvements

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You want to renovate your home, but find yourself without the cash to do so right now. While you might be able to obtain a personal, unsecured loan, the interest rates on it might be higher than what you want to pay. Another option is a home renovation loan. You have several options when you already own the home. Lenders may offer you a home equity line of credit, a home equity loan, or a cash-out refinance.

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No matter which loan you choose, you’ll pay interest. How much interest you pay does depend on the loan, though.

Home Equity Line of Credit

The HELOC, or home equity line of credit, usually has the lowest interest rate. Don’t fall for this loan just yet, though. Yes, you do get a low introductory rate, but the rate is variable. In other words, it could change from month to month. There’s no way to predict your rate either.

The good thing about the HELOC is you only pay interest on the funds you use. Let’s say you take out a $50,000 HELOC, but you only draw $10,000 of the funds right away. You would then only pay interest on that $10,000. If you leave the remaining $40,000 untouched for the remainder of the term, you’ll never pay interest on those funds.

Home Equity Loan

The home equity loan works a little differently. With this loan, you don’t get to draw funds as you need them. Instead, you receive the funds as one lump sum. You can put the funds in a savings account or some other safe place to use them as you need.

Because you draw all of the funds at once, though, you start paying interest immediately on the full amount. The interest rate charged on this loan is usually slightly higher than the HELOC too. But, your chances of securing a fixed-rate are much higher on this loan. So you may pay a little more interest upfront, but you never have to worry about the rate changing.

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Cash-Out Refinance

Your final option is the cash-out refinance. With this loan, you refinance your first mortgage and take out a larger amount. Let’s say you owe $150,000 on your current mortgage, but your house is worth $300,000. You may be able to take out up to 80% of the home’s value with the cash-out refinance. In this case, that means an additional $90,000 for your home renovations.

Lenders take a risk when they give you a larger loan than your outstanding first mortgage. Because of this, the interest rate on the cash-out refinance is usually the highest amongst the three choices. This doesn’t make it the worst choice, but it does mean it will cost you more to keep this loan, especially if you take a 30-year term. The longer you borrow the money, the more interest you will pay on it over the life of the loan.

So do home renovation loans carry higher interest rates? It depends on the chosen loan as well as your qualifying factors. Just like any other loan, lenders base your interest rate on the risk you pose. If you have borderline credit scores and high debt ratios, you may end up paying higher interest rates. If, on the other hand, you have great credit and low debt ratios, lenders may give you access to lower interest rates even on a home renovation loan.

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