Home Equity Loans The Best 2nd Mortgage for Financing Home Improvements

Home Improvement vs. Moving: Making the Right Choice

If you’re tired of outdated features in your home, like avocado green appliances or shag carpeting, you’re not alone. Home improvement projects are becoming increasingly popular, with many homeowners choosing to remodel rather than move. Here’s a guide to help you decide whether to stay and renovate or move, and how to finance your home improvement projects effectively.

Deciding Whether to Remodel or Move

Cost Comparison:

• Moving Costs: According to the American Homeowner Foundation, moving can cost at least 10% of your home’s current value. If you can renovate for less than this percentage, staying and remodeling may be more cost-effective.

• Remodeling Costs: Evaluate how much it will cost to bring your home up to your standards. Compare this with the cost of moving to a new home that meets your needs.

Financial Considerations:

• Equity Utilization: If you have significant equity built up in your home, using a home equity loan or line of credit can be a practical way to fund your renovation.

• Long-Term Stay: Ensure that you plan to stay in your home long enough to recoup the cost of the renovation.

Financing Your Home Improvement

1. Home Equity Loan:

• Advantages: A traditional home equity loan provides a lump sum based on the equity in your home. It often comes with a lower interest rate compared to other types of loans and can potentially lower your overall mortgage payment.

• Repayment: The loan is repaid over a fixed term, similar to your original mortgage, making it easier to budget.

2. Home Equity Line of Credit (HELOC):

• Flexibility: A HELOC gives you access to a line of credit based on your home’s equity. You can draw from this line as needed, making it ideal for smaller, incremental projects.

• Interest Rates: The interest rate on a HELOC is typically variable, which means it can fluctuate over time.

3. Refinancing:

• Financial Sense: As Lori Vella, a senior banking executive, advises, refinancing to fund home improvements can be a smart move, but only if you plan to stay in the home long enough to offset the refinancing costs. In the current rate environment, refinancing can be particularly advantageous.

4. Energy Efficient Mortgage Programs:

• Utility Company Programs: Check with your local utility company for programs that offer financing for energy-efficient improvements. These programs can help lower your utility bills and may include incentives or rebates.

Choosing the Right Remodels

High ROI Projects:

• Kitchen Remodels: According to Remodeling Magazine’s 2004 survey, minor kitchen remodels offer a high return on investment (ROI), with around 92.9% of your investment typically recouped.

• Siding Replacement: New siding also provides a high ROI at approximately 92.8%.

• Other Projects: Bathrooms, attic conversions, deck additions, and family or sun room expansions are also considered lucrative investments, with returns generally ranging from 80% to 90%.

HUD 203(k) Program:

• Fixer-Upper Financing: If you’re purchasing a home that needs significant renovations, the HUD 203(k) program allows you to finance both the purchase and the remodel costs with a single mortgage. Many lenders offer access to this program.

Conclusion

Deciding whether to remodel or move involves evaluating the costs associated with each option and considering how long you plan to stay in your home. Home equity loans and HELOCs provide flexible financing options for renovations, while refinancing and energy-efficient mortgage programs can offer additional benefits. When done thoughtfully, home improvements can significantly enhance your home’s value and your quality of life.