It’s no secret that home values have increased significantly over the past few years. If you’re fortunate enough to own a property that has seen an increase in value, you may be wondering if now is a good time to renovate to increase its value even further.
Luckily, there are a few ways to use your equity to fund your home renovation project.
What is Equity?
Equity is the value of your property after subtracting any debts or other claims against it. In short, equity is what you own outright in your property. It’s important to build equity in your property because it can give you a cushion in case of financial difficulties, and it can also be used as collateral for loans.
There are two main ways to build equity: by making payments on your mortgage loan and by increasing the value of your property. Making payments on your mortgage loan will gradually reduce the amount you owe while increasing the value of your property will increase the market value of your home.
One way to make sure you’re building equity in your property is to keep up with home maintenance and repairs. By keeping your property in good condition, you can help to preserve or even increase its value. Another way to build equity is to add improvements or make other changes that will increase the value of your home.
5 Ways You Could Use Equity to Renovate Your Home
1. Take out a home equity loan.
Home equity loans are a second mortgage against your home. The loan is based on the difference between what you owe on your mortgage and the value of your home.
If you have a lot of equity in your home, you could take out a home equity loan to finance your home renovations. This would allow you to keep your monthly mortgage payments the same while increasing the value of your home.
If you’re considering taking out a home equity loan, there are a few things you should know. First, interest rates on home equity loans are usually higher than those on first mortgages.
Second, you’ll need to have enough equity in your home to qualify for the loan – most lenders will require at least 20 percent.
Finally, remember that taking out a home equity loan will add to your monthly expenses – make sure you can afford the additional payment before applying.
2. Get a home equity line of credit.
If you’re considering renovating your home, you may be able to use a home equity line of credit (HELOC) to help finance the project. A HELOC is a type of loan that allows you to borrow against the equity in your home.
Equity is the portion of your home’s value that you own outright, and it can increase as you pay down your mortgage or as your home’s value goes up. You can usually borrow up to 85% of your home’s equity, which means that you could potentially get a sizable loan for your renovation project.
3. Refinance your mortgage.
When you refinance your mortgage, you generally have the opportunity to borrow additional money against the equity in your home. This can give you the extra funds you need to cover the costs of your renovation.
Of course, there are a few things to keep in mind before using refinancing for home renovations. For one, you’ll need to make sure that the value of your home will increase enough to cover the cost of the loan. Otherwise, you could end up owing more than your home is worth.
You’ll want to find a loan with a low-interest rate and favorable terms to keep your monthly payments affordable. If you’re thinking of using refinancing to finance home renovations, talk to your mortgage lender about your options.
4. Take out a personal loan.
Personal loans can be a great way to finance a home renovation because they usually have lower interest rates than credit cards and other loans. Plus, you’ll have a fixed monthly payment, making budgeting for your project easier.
Before you take out a personal loan, though, it’s important to compare offers from multiple lenders to make sure you’re getting the best deal possible. And be sure to read the fine print, so you understand all the terms and conditions of your loan.
When you’re ready to apply for a personal loan, have all your financial information on hand, including your income, debts, and credit score. Once you’re approved for a loan, make sure you use the funds as intended and make your payments on time to avoid penalties or additional fees.
5. Use savings
You could use your savings to renovate your home. This would allow you to update your home’s appearance and make it more functional. You might want to add an extra bathroom or bedroom or renovate the kitchen.
If you’re not planning on selling your home anytime soon, you may consider using your savings to make some much-needed repairs.
No matter what you decide to do with your savings, talk to a financial advisor to get advice on the best way to use your money. They can help you figure out how much you can afford to spend and what the long-term implications of your choices will be.
Using your home equity
Your home equity can be a powerful tool for homeowners looking to renovate their homes. By tapping into your home equity, you can get the funds you need to make those much-needed renovations and enjoy all the benefits that come with them.
